Here's your 20-second guide to what Australian traders will be talking about this morning

Spencer Platt/ GettyImages

A quick recap: Traders appear to believe last night’s economic data releases in the US weren’t strong enough for the Fed to hike rates this week if the solid rallies on the big three indices are any indication of sentiment. At the close of trade they posted gains of between 1.1% and 1.4%. Europe was a little less ebullient but still very positive nonetheless with all the major indexes higher.

As a result, the December SPI 200 futures rallied 58 points to 5,051. That points to around a 1% gain in physical trade on the ASX today after stocks in the 200 index fell 1.5% yesterday amid Asia stock market weakness. Chinese stocks were under the pump once again with losses greater than 3%. That’s despite news yesterday that China’s government is taking action to address flagging economic growth. I guess that perhaps simply highlights Chinese growth is weak and lacks internal momentum at the moment.

Elsewhere the US dollar was a little stronger overnight with the euro back under 1.13 and USDJPY above 120 again. That’s weird if stocks are higher, because traders think the Fed will hold pat – that should undermine the US dollar. But it continues the strange relationship between the dollar and stocks where the dollar strengthens as risk appetite rises. That helped the Aussie outperform both the yen and euro and particularly the pound, which fell out of bed after inflation dipped back to zero in the UK.

Bonds were unusually interesting last night with the 10s in the US, and here in Australia, coming under heavy selling pressure. Gold is down a little, crude rallied off its recent support zone and is up around 2.5%. Copper rallied as well.

The overnight scoreboard (7.14am AEST):

  • Dow Jones Industrials +1.4% to 16,599
  • Nasdaq Composite +1.14% to 4,860
  • S&P 500 +1.28% to 1,978
  • London (FTSE 100) +0.87% to 6,137
  • Frankfurt (DAX) +0.56% to 10,188
  • Tokyo (Nikkei) +0.34% to 18,026
  • Shanghai (composite) -3.55% to 3,004
  • Hong Kong (Hang Seng) -0.49% to 21,455
  • ASX Futures overnight (SPI December) +58 to 5051
  • AUDUSD: 0.7137
  • EURUSD: 1.1266
  • USDJPY: 120.43
  • GBPUSD: 1.5340
  • USDCAD: 1.3243
  • Nymex Crude (front contract): $45.40
  • Copper (US front contract): $2.4375
  • Gold: $1,104
  • Dalian Iron Ore (January): 398 (denominated in CNY)
  • US 10 year bond rate: 2.29%
  • Australian 10 year bond rate: 2.85%

Now the news. There was a lot of data out in the US last night with retail sales rising for the third month in a row. The print of 0.2% for August was lower than the 0.3% forecast but there was a 0.1% upward revision to last month’s number to balance that out. Lower petrol prices were the key drag. But that was a price effect, so consumers still seem to be in fine fettle. Capital Economics’ Steve Murphy said in a note after the data that the report “suggests that the bout of late-month financial turmoil, which impacted consumer confidence a little, did not have any meaningful adverse impact on consumption”.

John Ryding, the chief economist of RDQ Economics in New York, told Reuters that “the Fed should be more reassured about the underlying pace of demand growth with this sales report and, at the margin, we think this report takes us another step closer to a rate increase on Thursday.”

I agree and even though industrial production data undershot with a -0.4% print and even though the NYC Empire manufacturing index dipped to -14.67, the employment sector overall and the improved retail sales and consumption point to an economy ready for higher rates.

– Indeed, on that, the heavy hitters from Deutsche Bank Research globally put out a great note yesterday which made a very cogent and compelling case why the Fed should hike this week. Strangely their “official” call is for not this week but the next meeting in October. Here’s just one of their excellent points. They say that “slack has been diminishing rapidly, and the labor market will likely be overheating before long”:

A few striking figures support this: (1) the unemployment rate has fallen to 5.1%, now standing at the Fed’s estimate for full employment; (2) employment has grown over the past 18 months at its fastest pace since 2000; (3) initial unemployment claims are near the lowest level in four decades; (4) job openings have risen to record high levels; (5) the number of available workers per job opening has fallen from 10 in 2009 to below 3, matching levels at the peak of the last expansion; (6) the broader U-6 unemployment rate has fallen from 17% to 10.3% and by 1.7pp over the past year. These figures are consistent with a labor market near full employment, not indicative of significant slack.

– While stocks ripped higher in the US, so too did interest rates. US 10s are up 10 points to 2.29% overnight and that has knocked Aussie 10-year bonds for six as well. Having traded under 2.70% early yesterday Australian 10-years are this morning up above 2.8%, according to my Reuters terminal. That’s even as the futures markets in the US have the odds of a Fed tightening this week below 30%. Here’s the hourly chart of the Aussie 10-year bond rate:

Source: Reuters

– Turning back to stocks and NYSE floor governor Rich Barry is out with a note saying that something big is about to happen in stocks. That fits with the wedge pattern I’ve been talking about since last week. Here’s Barry:

Explanation: triangle patterns on charts are also referred to as “coils.” Can you see why? As the upper and lower parts of the triangle get closer together, the battle between the bulls and the bears gets more intense and the suspense builds. Obviously, at some point, prices are going to move outside of the triangle’s boundaries — but will they move higher or lower? Psychological energy coils up like a spring inside of the triangle and the closer the lines get, the bigger the inevitable breakout will be…

And here’s his chart:

– On forex markets, the Aussie broke lower initially last night but it’s recovered reasonably well given that the euro, yen and pound were hit by a little bout of US dollar strength. Sterling is the big loser, down more than 100 points after the CPI data showed no signs of inflation which seems to undermine the Bank of England’s hawkishness on rates. Reuters reported that economists at Barclays wrote in a note to clients that “against this backdrop, hawkish comments by (BoE policymakers) Kristin Forbes or Martin Weale over the weekend sound hollow. To remain on track for a rate hike in Q1 2016, domestic data, including inflation, will now need to consistently surprise on the upside.”

– Elsewhere, in a rare move these days, Credit Rating Opinion firm Standard & Poor’s UPGRADED the sovereign credit rating of South Korea to AA-minus from A-plus. In doing so, S&P commended the strength of the nation’s economic growth, the fall in the short-term debt component of external debt and the reduced reliance on foreign debts in the banking sector. S&P said “Korea will maintain economic growth performance superior to most developed economies in the next three to five years.”

– On the data front today, we get the release of the Westpac leading indicator of Australian growth and Kiwi trade data this morning. Tonight it’s UK employment data, a Bund auction in Germany and CPI and labour costs in the EU. In the US we get the release of CPI which will be important to the Fed’s discussions as their meeting begins tonight. The NAHB housing market index and TIC flows in the US are also out.

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

Trade Me Group Limited (TME.ASX)

Shareholders in on line market place and classified advertiser, Trade Me, had a pleasant surprise in the form of a strong share price rally following release of its results on 20 August. Even so, TME is still trading on what looks like an undemanding multiple of around 15 times forecast earnings.

The chart suggests a couple of alternatives for potential buyers. The first would be a pennant formation. This would be confirmed by a move past Friday’s high at $3.20. That would confirm the support line of the pennant while the large, post result rally forms the “flagpole”. Pennants are potentially bullish chart patterns, representing a brief pause in a high momentum rally. If this one is confirmed and there is a quick move to take out the pennant resistance line, that would complete a chart buy signal.

The alternative might be a deeper correction of the post result rally. Here a couple of “abcd” pattern levels may be worth keeping an eye on. At $3.02 the cd leg would equal the ab leg. At $2.96 cd would be a 127% Fibonacci extension of “ab”.

Ric Spooner, chief market analyst, CMC Markets

You can follow Ric on Twitter @ricspooner_CMC

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