Stocks had a little bit of an off day with the US and Europe overnight. But the really remarkable statistic is that the S&P had its 20th straight session of trading within a 1% range.
That remarkably low volatility sets up a big move at some point.
Looking at the local session, futures traders are guessing at a small down day with the September SPI 200 contract off 5 points after yesterday’s fairly benign 8 point loss on the physical.
There will of course be more interest in the banks, energy stocks could suffer after oil’s fall and all eyes will be on those companies reporting – especially Telstra.
On Forex markets the Aussie dollar climbed to a high around 0.7755 overnight but it’s back around 0.77 cents this morning. But the Kiwi is the big mover after the RBNZ cut rates by 0.25%. Yep, the Kiwi is higher.
In other markets, oil is down after stockpiles rose and news broke that Saudi production hit a new record high. Gold is higher as uncertainty in markets continues and iron ore is lower.
Here’s the scoreboard (7.35am):
- Dow: 18495 -37 (-0.2%)
- S&P 500: 2175 -6 (-0.3%)
- SPI 200 Futures (September): 5,483, -5 (-0.1%)
- AUDUSD: 0.7703 +0.0033 (+0.15)
The top stories
1. RBA governor Glenn Stevens went out blazing. Glenn Stevens delivered a great speech yesterday in his last appearance as governor. Key takeaways were, monetary policy is less effective than it was because people have so much debt, and politicians are hopeless and self interest doesn’t just run a place when new measures are suggested it swamps the field. We also heard him defend his legacy, saying the bank delivered on its mandate during difficult times.
2. The RBNZ cut rates by 0.25% this morning. Like its trans-Tasman cousin, the RBNZ has cut rates because of low inflation even though RBNZ governor Wheeler’s statement was more in line with a decision to leave rates on hold. But unlike the RBA, the RBNZ has a stated bias to ease further.
3. We learnt a lot from the CBA’s report yesterday. We learnt that the bank is feeling the pressure from Bill Shorten’s enduring calls for a Royal Commission with CBA CEO Ian Narev saying business and other customers are wondering why it still feels like an election campaign.
We learnt that the bank is trying to convince external stakeholders its decision to withhold a fair chunk of the RBA rate cut last week was to balance the “interests of people who want to give us money to save and people who want to borrow money from us and our shareholders who give us the capital we need to survive”.
We learnt women will represent half the Commonwealth Bank’s group executive by the end of the year. And we learnt the outlook for the CBA (perhaps the economy) is more subdued than it was even just 6 months ago. NIM fell a little across the group but went up in the retail side of the business, we learnt that loan impairment expense jumped to $692 million, and we learnt that the bank made a $9.45 billion cash profit.
We also learnt the CBA is still paying massive dividends relative to earnings. But all in all, I think we can see the future for Australia’s big banks is less rosy than their recent past but it’s not terrible either.
One other thing I picked up from the CBA’s presentation. We learnt why the Big Four might struggle to explain holding back the rate cut.
4. Inflation might be sneakily coming back – here’s what could be the most important chart in the world. It might just be one small corner of the developed world but last night Norway released CPI data which showed a 0.7% rise in core CPI (headline 0.6%) during July which took the year on year rate to 3.7%.
But it’s not just Norway, Myles Udland reports. He says core inflation in the US as measured by the consumer price index, showed prices rising 2.3% year-over-year as of June. Myles says as core CPI continues to move up, a bond market that continues to bet on lower growth, lower inflation, and lower rates appears particularly vulnerable, according to analysts at Goldman Sachs.
Interesting piece and worth the time because if markets get inflation wrong, the day of reckoning in bond markets is going to reverberate around the globe.
5.. Finally a cryptocurrency I can have faith in. Bitcoin, or the blockchain technology that underpins it, looks like the future of global transactions and finance. But as we saw with the recent hack and theft of $65 million worth of coins from Hong Kong based Bitfinex, there appear to be some enduring issues with security in the Bitcoin world.
But The Deal Room reports that the Bank of England has created its own version of bitcoin. Called RSCoin, the new digital currency will have its money supply managed by the BoE while at the same time the bank will be the central repository for deposits – I’m in.
6. It’s not just Australia where investors are in love with dividend stocks. I’m really worried how this reach for yield ends. So many market funks have resulted from investors chasing returns. James T. Tierney, Jr. and Dan Roarty writing on the BIUS site say that “the hunt for yield and safety stocks continues to captivate investors. Of the nearly 2,700 US equity mutual funds and ETFs, investors have poured money into less than 20%—those with the highest yields. The rest have seen outflows.”
Dividends equal income – investors are chasing income. That makes sense but Tierney and Roarty also set out the risks. You read the full story here.
Key data for the past 24 hours (with thanks to BNZ markets)
JP: Housing loans, y/y, %,Q2: 2.4 vs. 1.9 exp.
NW: Underlying CPI, y/y, %, Jul: 3.7 vs. 3.1 exp.
US: Jolts job openings, ‘000s, Jun: 5624 vs. 5675 exp.
And now from CMC Markets’ Michael McCarthy is today’s Stock of the Day
Triple Technical Threat to Fairfax.
Fairfax Media (FXJ) reported its full year results yesterday. Any sensible commentator would look at the numbers, assessing both the income statement and the balance sheet, detecting fundamental shifts in the business and any implication for the share price.
But I’m a ratbag trader, and lazy too. I don’t need to look at the numbers. I don’t need to even consider CEO Greg Hywood’s outlook statement. Because the behaviour of FXJ’s share price is alarming, and the charts are telling a compelling story.
Market reversals are a great source of trading profit. Naturally, traders study the charts for patterns that signal price reversals. The problem for shareholders is that after yesterday’s sell down, there are three negative chart signals for FXJ shares.
The first is a triple top, marked on the chart with the yellow numbers. Triple tops are fairly common, and don’t always pan out. However, this is a special kind of triple top – a head and shoulders reversal. Yesterday’s selling took FXJ below the neckline (black line) to complete the pattern, confirming the sell signal. No technical signal is 100% accurate, but many traders favour the head-and-shoulders as a more reliable formation.
Worse, in the green circle (oval?) we have a rare formation known as an island reversal. Note how FXJ’s share price gapped into the circle, and then yesterday gapped out. This leaves the price action as an “island” against the broader backdrop. Some traders consider this unusual chart signal very reliable.
So I’m a seller of FXJ at the open, on a purely technical basis. And I won’t be the only one.
Michael McCarthy, chief market strategist, CMC Markets.
You can follow Michael on Twitter @MMccarthy_CMC
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