– Will they or won’t they? The RBA will be the number one topic of conversation in most dealing rooms this morning. Sure, traders will be talking about the big miss on US non-farm payrolls for March on Friday night. The print of just 126,000 undershot market expectations by a huge 119,000 jobs. That’s a big miss and highlights — AGAIN — if that’s necessary, that the US economy looks to have passed its sweet spot already. For more than three months now data has been printing on the downside of market expectations. Expectations of a Fed hike are slipping slowly toward the end of 2015 with some, me included, thinking 2016.
– That’s urbane to the debate about the RBA because one of the key tenets of the RBA thesis on the Aussie and the Australian economy is that when the Fed starts raising rates the Aussie will naturally fall further. As that expectations fades, or is delayed, that puts upward pressure on the Aussie dollar. That suggests to many that the RBA needs to cut to drive the Aussie lower. But that assertion disregards the notion that the USD is the other side of the AUDUSD cross – so where the US dollar goes so goes the Aussie. It’s worth noting that even after non-farms on Friday the Aussie is still below 76 cents this morning. So this concern seems a little overplayed and overblown for the moment. Where would the Aussie rally to anyway if the RBA doesn’t cut? 77 cents, 78 cents perhaps 80 cents? That’s a long way from 1.10 and not much above the post-1983 float average.
– Anyway we’ll know at 2.30pm this afternoon. Most economists in the Bloomberg survey don’t think they’ll cut this month. But most also believe another cut is coming. So it doesn’t matter if the RBA cuts or not today – as long as they keep their easing bias. But Soc gen’s Klaus baader reckons the Aussie will soar if the RBA doesn’t cut – he’s put an 80% chance on a cut today. You can find his thoughts here.
– Turning overseas and it’s worth noting that Forex and Gold markets had a bit of a fun time while we were away. Gold climbed the best part of $20 an ounce to hit around $1,224 yesterday. It’s back at $1,214 this morning. Likewise USDJPY was down below 118 and the Euro was up near 1.10 at one point while Australian markets were closed. They are both weaker this morning given the US dollar had another little surge in the past few hours – but the Euro is up around 2 cents from last Thursday our time. Worth noting in the context of the RBA – and proof forex traders are betting on a cut – was that the Aussie lagged the US dollar sell-off with a high of 0.7794 swiftly rejected over the weekend. It’s back at 0.7599 this morning.
– Turning to stocks and the local market could get a lift from the surge in US markets on Friday as the prospect of a Fed tightening recedes. All three major market indices in the US were up around two-thirds of a percent.
Here’s the overnight scoreboard (as at last trade for each market):
- Dow Jones up 0.66% to 17,880
- Nasdaq up 0.62% to 4,917
- S&P up 0.66% to 2,080
- London (FTSE 100) up 0.35% to 6,833
- Frankfurt (DAX) down 0.28% to 11,967
- Paris (CAC) up 0.24% to 5,074
- Tokyo (Nikkei) 19,397
- Shanghai (composite) up 0.99% to 3,863
- Hong Kong (Hang Seng) up 0.77% to 25,275
- ASX Futures (SPI June) down 9 points to 5,877
- AUDUSD: 0.7600
- EURUSD: 1.0929
- USDJPY: 119.45
- GBPUSD: 1.4885
- USDCAD: 1.2473
- Crude: $52.14
- Gold: $1,214
– The other big news over the Easter break was the surge in Crude oil prices. Nymex April delivery crude is up around $2.50 a barrel for a gain of more than 5%. Gold bounced but backed off and copper is off a smidge at $2.73. On the bulks Dalian September iron ore continues to languish at 380 while June Newcastle coal sits at $53.85 a tonne.
On the data front today nothing compares with the RBA announcement at 2.30pm although retail sales for February, though historic, will be important. ANZ job ads, weekly consumer sentiment and the AiGroup PSI are also out. Offshore HSBC/Markit Services PMI’s are out all over the globe. EU PPi is also worth watching.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day:
Invocare is Australia’s largest private funeral, cemetery and crematorium operator. Admittedly it lacks the “feel good” factor that investment in the healthcare sector has. But like healthcare, this industry will benefit from Australia’s growing and ageing population. With a dividend payout ratio of 85%, Invocare has also been helped by the yield theme and is currently trading at around 27.5 times forecast earnings for 2015.
Like other Australian companies that dominate the domestic market, Invocare is now at a stage where it may be difficult to acquire more businesses in Australia. It has a major New Zealand presence and recently announced a small acquisition in California which it will use to test the waters for a strategy of expanding into the USA which also has an ageing population.
In the meantime the Invocare chart is forming what could develop into a bearish head and shoulder pattern. Completion of this pattern would require the stock to lose over 4% from current levels to conclusively break the blue neck line at around $12.60. So it’s only a maybe. However, it the neck line was to break, investors might get a more substantial sell off and a chance to buy this yield stock at more moderate PE valuations. Looks like a chart for the watch list at this stage.
Ric Spooner, chief market analyst, CMC Markets.
You can follow Ric on Twitter @ricspooner_CMC