Markets in the US recovered from early worries about China’s disappointing trade data to finish only mildly lower and well off the lowest points for the day.
That is the case both with stocks and US Treasuries.
That US markets recovered even though Europe had a bad night has helped futures trades on the ASX with the December SPI 200 contract bouncing from a fall to 5385 before finishing this morning at 5426. Up 11 points overnight suggests a good start to the day.
It was a similar story for the Aussie dollar which bounced back from a low around 0.7507 to sit at 0.7568 this morning, up slightly day on day. That’s in part because the US dollar was also weaker which has taken pressure off the euro, pound, Kiwi and yen.
Elsewhere oil and gold are up a little but copper was hit hard by the Chinese data.
Today’s key focus is the release of the RBA’s latest financial stability review. That could be interesting for banking stocks and housing.
Here’s the scoreboard (8.23am):
- Dow: 18098 -45 (-0.25%)
- S&P 500: 2132 -7 (-0.3%)
- SPI 200 Futures (December): 5,426 +11 (+0.2%)
- AUDUSD: 0.7565 -0.0000 (+0.0%)
The top stories
1. Stock traders looked over the abyss last night but stepped back – so the ASX is pointing higher this morning after yesterday’s fall. The Chinese trade data yesterday (see item 4) hit the Aussie dollar and the ASX hard and set off a wave of selling in Europe and the US. It got so bad in the US at one point that the S&P 500 broke the 2116 level HSBC had said in their Red Alert where the bank said “the selling would truly set in”.
But the selling didn’t accelerate and the S&P bounced back to finish at 2133. That’s still not exactly strong. But it is enough to suggest the ASX and Aussie dollar may have overreacted in a relative sense to the Chinese trade data yesterday. We’ll still be watching Chinese data today but unless the RBA issues a dire warning on housing or the banking system in its financial stability report, we should have a better close into week’s end.
2. Citi has downgraded BHP and Rio to sell. The local market has been revelling in the bounce in the miners that has accompanied the massive recovery in commodity prices from their lows earlier this year. But overnight BHP and Rio came under heavy selling pressure falling more than 4% after Citi said it was downgrading them to a “sell”.
3. Fitch didn’t warn on Australian housing yesterday – a survey of interest rate investors it undertook did. I need to raise this as a point of clarification because as I was driving up the freeway to Port Stephens last night I heard multiple times that international credit rating agency Fitch had warned Australia’s property market now posed a bigger risk than China.
What Fitch actually said (my emphasis) was “a downturn in Australia’s housing market presents the greatest threat to domestic credit markets in the next 12 months, according to the latest survey of the country’s fixed-income investors replacing the prospect of a China hard landing as a top concern for the first time since the biannual poll began in April 2014″.
Equally, Fitch revealed “only 4% of the investors surveyed believe house prices will fall more than 10% by mid-2019, a confidence underpinned by their stable views of two key economic drivers; unemployment and interest rates”.
4. Just when I was spruiking about the improved outlook and upgrades to China’s growth outlook, we got yesterday’s poor trade data. As David Scutt highlighted yesterday, China’s trade data delivered some unwanted news. The big shock was the 10% drop in exports in the year to September which was well short of forecasts for a drop of just 3%.
Imports were also back in contraction territory, falling 1.9% from a year earlier. That too missed forecasts for a gain of 3.0%, and was a reversal from the 1.5% lift recorded previously.
Now we wait for CPI and PPI today and retail sales, industrial production and urban investment next week to see if those of us who were optimistic have gone a little early.
5. UBS says buy gold. Here’s another bullish piece on gold with the bank’s Chief Investment Office Wealth Management Research arm say the yellow stuff is headed back to $1350 over the next year but it could fall to $1225 first. That would be a nice trade, Akin Oyedele has more here.
6. Here’s another sign the US labour market is strong. Initial jobless claims haven’t been this low since the 1970s with last night’s latest update printing 246,000. But as Akin Oyedele points out, the big news is that the four-week moving average of claims, which evens out some of the week-by-week volatility, fell by 9,000 to 244,000, the lowest level since November 3, 1973. It fell below 250,000 for the first time since that year.
Likewise, Akin points out that the weekly print has not crossed the 300,000 mark for 84 straight weeks, the longest streak since 1970.
It’s just another sign there has been a big shift in thinking at the Fed. It just reinforces that a December rate hike feels locked and loaded on the current settings.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Computershare (CPU: ASX)
Computershare underperformed the market yesterday, finishing down 2%. It’s now down 3.6% from last week’s peak.
This correction looks interesting because Computershare will benefit from a number of the underlying trends that markets have been reacting to in recent weeks.
Higher US interest rates will improve earnings from on client funds held and the stronger $US will benefit the $A value of the company’s earnings, given that it reports in $US
Both these trends look like having further to play out over the medium term.
If we get a temporary correction against these themes, potential buyers might just get an opportunity around the $9.90/$10.10 support zone. The bottom end of this would see a re-test of the old triangle resistance which is common chart behaviour.
There are risks of course, not least of which is Computershare’s exposure to a weaker Pound. This exposure comes from its UK mortgage servicing business
You can follow Ric on Twitter @ricspooner_CMC
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