6 things Australian traders will be talking about this morning

Mike Hewitt/Getty Images for XCAT

The Australian dollar continued its strength overnight, hitting a high of 0.7687.

It’s only back 20 points or so from that high and looking strong as traders appear to have a renewed focus on its positive attributes.

On stock markets, Europe had a great night with the DAX leading the way with a 2.5% gain but at the close the US was only just able to cling to the black.

That didn’t bother SPI traders however with the September futures up 10 points suggesting another solid start to the day. But all eyes will be on the CBA earnings report this morning and what they say about the economic outlook, their dividend policy, bad debts, and why they didn’t pass on the full 25 basis point RBA cut.

Elsewhere gold is up, oil is down, copper dipped again and iron ore is weaker.

Here’s the scoreboard (7.33am):

  • Dow: 18533 +4 (0.02%)
  • S&P 500: 2182 +1 (+0.04%)
  • SPI 200 Futures (September): 5,500, +10 (+0.2%)
  • AUDUSD: 0.7666 +0.0010 (+0.1%)

The top stories

1. Here are 4 reasons why the Aussie dollar is defying gravity and why it might go higher. The AUDUSD continues to defy pundit calls for its collapse. At 0.7670, it’s back up at 4-month highs. But it’s not to hard to explain why given the global back drop – low rates everywhere and rising commodities.

Indeed, David Scutt had a a look at TD Securities’ Annette Beacher’s latest missive on the AUDUSD which has a cracking chart of the movements in the price of iron ore and the Aussie dollar. It’s not hard to see why it’s strong at the moment.

2. The NAB’s decision to change their interest rate call is momentous. This was out yesterday but I think it is worth revisiting. The NAB’s economics team is looking for 2 cuts and maybe even QE from the RBA even though the NAB Business survey is still pretty solid.

But the thing that jumped out at me is that even with solid business conditions, NAB chief economist Alan Oster thinks the risks for the economy are tilted to the downside.

When you have a balance sheet the size of the NAB’s you can see everything that is going on in the economy. That suggests to me the NAB might be seeing something that the data is only just starting to pick up.

3. And here’s how tough currency markets have become – Goldman says buy the US dollar, Morgan Stanley says not so fast. Bloomberg reports this morning that “Goldman Sachs Group Inc. is telling clients to buy the dollar as the market underprices the odds of a Federal Reserve interest-rate increase this year. Morgan Stanley says not so fast.”

The debate is about the impact of the strong US jobs data on the Fed and whether, or how soon, it is going to raise rates. Goldman says a rate hike soon is now a 75% chance while Morgan Stanley believes its less likely because inflation expectations are still anchored.

The debate will ultimately be critical for the outlook for the AUDUSD as well and the RBA is likely to be hoping Goldman is right.

4. Jim Grant says gold isn’t a hedge on chaos — it’s an investment in chaos. Gold is up close to $300 an ounce from the low early this year. A big part of that is that traders and investors are increasingly betting that gold isn’t an inflation hedge anymore, it’s an uncertainty trade.

Jim Grant, prominent publisher of Grant’s Interest Rate Observer in the US said in a presentation recently that “radical monetary policy begets more radical policy”. “It seems to me, at some point, markets or voters will put a stop to this.”

5. Uber bear Mark Faber says the S&P 500 can collapse to 1100. US stocks are up at all-time highs but Akin Oyedele reports Marc Faber is still bearish. In a CNBC interview on Monday, the editor and publisher of the “Gloom, Boom & Doom Report” spoke on why he sees a 50% drop in the S&P 500 coming, and why he likes US Treasurys right now.

“I think we can easily give back five years of capital gains, which would take the market down to around 1,100,” he said.

Matt Turner has BAML’s view on what might cause such a disaster for the market.

6. Traders might want to keep an eye on China – not its economy, its politics. Chinese media attacks on Mack Horton and Australia continued for a second day yesterday. While it may look like a bit of a sideshow, China appears to be ratcheting up the rhetoric across the board at the moment and has become increasingly belligerent in its neighbourhood.

As we know, one of the state-run papers had a pop at Australia over the South China Sea recently and implied Australian vessels should be taken out.

Just last weekend, China sent a fleet of ships to wind up the Japanese over disputed islets in the East China Sea while at the same time it is disputed South Korea and the US over the new missile defence system the Koreans are putting in place to protect themselves from the North. It’s a new aggression and while not an issue for traders at the moment, we need to watch closely to see how it all plays out.

Geopolitical missteps, should they occur, on this scale would be a weight on markets.

Key data for the past 24 hours (with thanks to BNZ markets)
NZ: Card spending retail, m/m, %, Jul: 0.3 vs. 0.1 exp.
AU: NAB business conditions, Jul: 8 vs. 12 prev.
AU: NAB business confidence, Jul: 4 vs. 6 prev.
UK: Industrial production, m/m, %, Jun: 0.1 vs. 0.1 exp.
UK: Trade balance, £m, Jun: -5084 vs. -2550 exp.
US: Non-farm productivity, Q2 P: -0.5 vs. 0.4 exp.
US: Unit labour costs, Q2 P: 2.0 vs. 1.8 exp.
CA: Housing starts, ‘000, Jul: 198 vs.191 exp.
UK: NIESR GDP estimates, Jul: 0.3 vs. 0.4 exp.
US: Wholesale inventories, m/m, %, Jun: 0.3 vs. 0.0 exp.

You can catch me on Twitter or at AxiTrader where I am the Chief Market Strategist.

And now from CMC Markets’ Michael McCarthy is today’s Stock of the Day

Lend me your Cochlear

To bounce, or not to bounce? For Cochlear shareholders, that is the question. Yesterday Cochlear management delivered a strong result, increasing revenue by 23% and profit by 30%. Guidance for next year is lower, forecasting profit growth of 10%-20%. This is still impressive in the current low growth, low interest rate environment.

Yet the shares tumbled, down more than 7% at one stage yesterday, before recovering to around 3% down. What went wrong?

There is an argument around the growth profile. Analysts reverse engineered the numbers, and discovered local like for like growth was only 4.5% for H2, compared to 11%+ in H1. This gave rise to concerns about slowing business momentum. At a P/E around 33.5 times, that’s a non-trivial issue.

Nonetheless, the chart shows what happened the last couple of times Cochlear’s share price came under pressure. A fall below yesterday’s low at $120.00 would be a very bad sign, suggesting significant further falls to come. However at levels above $125.00 the chart suggests higher sooner. Cochlear – on the radar.

Michael McCarthy, chief market strategist, CMC Markets.

You can follow Michael on Twitter @MMccarthy_CMC

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