6 things Australian traders will be talking about this morning

After a horror day for stocks on the TSE and ASX traders in Europe took continental bourses higher by 1.5% or more while the FTSE was 0.71% higher.

In the US, stocks are flat to down after Fed chair Janet Yellen delivered a measured performance which wasn’t as aggressive as recent Fed pronouncements but equally still positive on the US economy.

That’s left the ASX futures up 20 points with the March SPI 200 at 4,730.That will disappoint many after the index lost another 1.17% yesterday and entered what some call bear territory. The recovery in global banks might help the index today. Hopefully.

Crude oil crashed again and is now at $27.42 for the front Nymex contract, and gold is trying to break the $1,200 mark again, sitting at $1,196.

ON forex markets the Aussie dollar is at 71 cents again but the big news story is USDJPY below 114.

Here’s the scoreboard (8.05am):

  • Dow: 15,914, -100 (-0.6%)
  • S&P 500: 1,851, -1 (-0.1%)
  • SPI200 Futures (March): 4,730, +20 (+0.3%)
  • AUDUSD: 0.7105, +0.0035 (+0.52%)

And the top stories:

1. Janet Yellen did it. She walked the tightrope perfectly. The positive day we have ahead of us here in Australia today is in no small part because Yellen did a masterful job of airing her fears about the global economy, continuing to suggest that the US economy still warrants further rate rises, but also allowing the Fed flexibility to reverse course if required.

Her prepared statement was pitch perfect. What she said subsequent when questioned by lawmakers was equally well pitched.

Here are some other highlights:

2. Does Janet Yellen agree with the hedge funders that the Chinese currency could weaken sharply? Yellen called out concerns about China’s exchange rate noting that, “although recent economic indicators do not suggest a sharp slowdown in Chinese growth, declines in the foreign exchange value of the renminbi have intensified uncertainty about China’s exchange rate policy and the prospects for its economy”.

Yet in the past two months, the yuan has only lost around 3.7% in value. But in the past two weeks the value of the US dollar against the Japanese yen has lost more than 6%.

I just want to scream “perspective” as the developed world policy makers have one rule for themselves and another for China. Take the rumour that was floated in Europe last night that the ECB might buy beaten down bank shares as part of QE as just one of a myriad of examples.

But it also makes me wonder. Could the Fed chair actually think the yuan’s weakness has a long way to go before it settles down?

3. Speaking of China, are they already running low on reserves? Readers know I’ve pointed out a few times that China’s massive stash of FX reserves is actually not that much relative to the size of the economy. But the US is waking up to that fact, which is bad news for Beijing. That’s because while no one hedge fund manager might be able to do what George Soros did to the Bank of England, the collective hedge fund money stacking up might be different.

Julia La Roche reports: “Texan hedge fund manager J. Kyle Bass, the founder of Dallas-based Hayman Capital, sent out a big letter to investors explaining why he thinks China has a problem much larger than the 2008 subprime crisis.” That is, China is burning cash and it doesn’t have as much as many thought.

Maybe that’s why Yellen is worried.

Oh and Bass also thinks there’s a “ticking time bomb” in the Chinese banking system. Hard to disagree.

4. Here’s a touchstone on growth – the world’s biggest shipping line says business conditions are worse than during 2008 crisis. The FT this morning reports that AP Moller-Maersk has warned that it is facing conditions worse than during the financial crisis.

CEO Nils Andersen told the Financial Times: “It is worse than in 2008. The oil price is as low as its lowest point in 2008-09 and has stayed there for a long time and doesn’t look like going up soon. Freight rates are lower. The external conditions are much worse but we are better prepared.”

5. Global banks rallied overnight, but the crisis is far from over. Banking is at the heart of the global economy and financial markets. Whatever you might think of bankers and their conduct (only some of them, don’t forget) over the past decade or so there is no economy without banking. Barter doesn’t really work so well on a global scale.

That said, global banking is in crisis, as Ben Moshinsky from BI UK points out. Here’s a little of what he wrote:

The old-school, traditional model of making money in banking is to exploit the net interest margin — the difference between the rate at which they lend and the rate at which their interest-earning assets bring in income.

But that’s not really a viable way to make money in the post-crisis, low-interest-rate era.

It’s a great piece.

6. The Bank of Japan is in tears. USDJPY is below 114 this morning a little less than two weeks after the Bank of Japan dropped rates below zero in an effort to drive it into the mid-120 region. The Tokyo stock market has collapsed as well with the Nikkei closing at 15,713, the lowest level in 16 months as traders worry the Bank of Japan has nowhere to go and its policies are failing.

It’s hard to argue. Central banks have been under-delivering on growth and inflation targets for years. But, markets haven’t entirely given up on central bankers yet as the reaction to Yellen’s testimony last night shows. But as the collapse in the Nikkei and USDJPY in the past two weeks show, the risk to financial markets aren’t just about the global economy. They include the paradigm that rests on central bank omnipotence.

You can catch me on Twitter.

And now from CMC Markets’ Ric Spooner is today’s Stock of the Day

Deutsche Bank

This is obviously going to be a key chart for world markets for a while.

Dispiritingly for shareholders, it’s testing the GFC lows. In fact it flicked below this level on Tuesday. However, a tepid bounce last night creates the hope it might form support around here. This possibility is enhanced by the fact that this level is also a harmonic, Fibonacci chart point where CD = AB x 1.27.

The long term monthly chart is over sold as indicated by the stochastic oscillator in the box below the chart. Strongly trending markets can stay over sold for a long time but bounces out of this zone often have a bit of momentum.

Looking at things on the big picture monthly chart below, even if this support holds, there’s a long way to go before you could conclude that any rally is more than just a counter trend correction. At this stage it would take a move up through resistance above 22 to suggest anything more than a minor bounce.

Ric Spooner, chief market analyst, CMC Markets

You can follow Ric on Twitter @ricspooner_CMC

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