6 things Australian traders will be talking about this morning

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Global markets dodged what could have an ugly extension of Friday’s selloff in bonds and stocks after Federal Reserve governor Lael Brainard lowered expectations for an interest rate hike.

That saw US stocks rally sharply and has the SPI 200 up 79 points, suggesting a good day for local traders after yesterday’s very weak trade.

Likewise the Aussie dollar found support again in the recent accumulation zone between 0.7490 and 0.7520, while oil recovered, gold was stable, and copper stepped back from the precipice. Iron ore futures are still sliding, however.

Here’s the scoreboard (7.53am):

  • Dow: 18325 +239 (+1.32%)
  • S&P 500: 2159 +31 (+1.47%)
  • SPI 200 Futures (September): 5,280 +79 (+1.5%)
  • AUDUSD: 0.7559 +0.0029 (+0.38%)

The top stories

1. Even though the ASX collapsed yesterday, the local market actually held important support. I prefer to look at the SPI 200 when I’m evaluating Australian stocks from an index level. The reason for that is the SPI trades around the clock, like forex, and so picks up the full moves in global markets and the reaction and impact on Australia. So while the ASX 200 broke important uptrend support yesterday at 5250, the SPI did not. Rather it found support during our trading day and has bounced with US stocks overnight.

That means that local stocks get a double whammy today of a 79-point gain in the SPI 200 after yesterday’s 120-point fall which left the ASX 200 at 5219. The second whammy is the bounce of the SPI off support. Today we’ll see the physical bounce back above 5250 creating a false breakout and then we should see it back at 5300 by the close. That said, here is the SPI chart showing the uptrend from the Jan lows remains intact.

SPI 200 (MT4, AxiTrader)

2. Stocks will bounce today but Goldman says there are five reasons stocks in the US will keep going lower. David Scutt reported yesterday that according to David Kostin, chief US equity strategist at Goldman Sachs, that when it comes to US stocks the best place to be invested right now is “none of the above”.

Overnight, Kostin outlines five reasons why the stock market’s direction will be down through year-end, and basically nowhere over the next year.

3. Donald Trump said the Fed is manipulating interest rates. Presidential candidate Trump said the Fed is holding rates until after the election when they’ll rise. “Watch what’s going to happen afterwards, it’s a very serious problem,” he said.

Which led Mark Cuban to tweet “Trump’s comment on the Fed is exactly why the market will tank if he is elected.” Traders need to watch this space because it seems other traders are worried about a Trump presidency.

4. Bonds are selling off and it may be just the beginning. Yesterday, Australian 10-year bonds were hammered back above 2% and closed around 2.1%. That was after weakness in other bond markets drove rates higher. You’d be forgiven for thinking that maybe some of that weakness was washed away overnight but the bad news is US 10s remain elevated at 1.67% – roughly Friday’s close.

I offer that as introduction to an article from Bob Bryan who reports Themos Fiotakis, macro strategist at UBS, says we could be in for a long selloff in bonds.

That’s important for stock valuations if we are seeing an end to the secular bull market in bond rates.

5. And here’s how that selloff could catch everyone by surprise. Jane Buchan, the chief executive of $US9 billion hedge fund of funds PAAMCO told the AFR we all need to watch out for a big selloff in bonds.

She said “rates can move much faster than people think” and that “when rates stay where they are [for an extended period] it breeds complacency and people think they are smart enough to trade out”.

Just like the carry trade in USDJPY can turn around and bite forex traders faster than anticipated, so too after such a protracted cycle and run into negative rates when bond traders decide the bull market has ended, all markets are at risk.

6. KKR: ‘The last couple of days certainly looks just the beginning of the tide rolling out’. Now I’m worried. Jamie Weinstein, global co-head of special situations at KKR, told Bloomberg TV that after doing it tough because of all the “quantitative easing … [you have a] flow of capital through financial markets into fixed income and credit in the search for yield”.

But that is about to change, he says.

“When you have the tide roll out, and the last couple of days certainly looks just the beginning of the tide rolling out, it could quickly turn the other way and be an opportunity.”

I’m Greg McKenna and you can catch me on Twitter or at AxiTrader where I am the Chief Market Strategist.

Key data for the past 24 hours (with thanks to BNZ markets)
Fed’s Brainard: “case to tighten policy pre-emptively is less compelling”.
Fed’s Lockhart: “serious discussion” about raising rates.
Fed’s Kashkari: “no urgency to act”.

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

Woolworths

Plenty of volatility here. Woolworths share price rallied 22% in the 2 months leading up to its profit result. This included announcement of the price it had received for sale of its hardware business.

In a little over 2 weeks, the stock has promptly dropped 11% from the announcement high. The main reason for this of course is that its joint venture partner Lowes is disputing the Masters sale. Both parties are playing hard ball. The issue is before the courts or possibly arbitration. Several hundred million dollars could be involved.

It’s possible that the whole Masters sale could fall over but it seems unlikely. At the end of the day shareholders are likely to be left with the strategic advantage of being out of the ill-fated hardware business and early signs that management’s strategy is starting to stabilise market share in its core food and liquor business. A higher payout to Lowes might have been pretty well discounted by the recent sell-off.

Against this background, Woolworths’ stock price has arrived at the first potential chart support zone formed by previous resistance. If the market falls conclusively through this, another area of chart interest is down around $21.50. This is the 78.6% Fibonacci retracement and the level where the latest CD swing is the same size as the previous (AB) swing.

Ric Spooner, chief market analyst, CMC Markets

You can follow Ric on Twitter @ricspooner_CMC

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