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

Stocks rose but all eyes on the Fed (Andrew Burton Getty)

A quick recap: Stocks have had a great last 15 hours or so. Of course the local market recouped all of the previous day’s losses with a 1.6% gain yesterday but that paled when compared to the massive move in stocks in Shanghai which rallied around 5% in the last hour of trade.

That set the tone for a strong performance in Europe and the US. That was aided by huge M&A news with SABMiller confirming that its rival beer giant Anheuser-Busch InBev is planning to buy the company.

That was enough to set a rocket moving through stocks but then the release of information by the IEA showing a fall in US inventories, and confirmation the White House won’t support the repeal of the ban on US oil exports, propelled crude oil sharply higher. The front-month Nymex contract was 5.92% higher with oil at its highest level since September 3rd.

All of which combined to see the big three US stock indexes push through the top of their recent pennant formations. That’s bullish. But it’s unlikely too many traders will take that signal till the Fed is out of the way at 4am AEST tomorrow. That might also restrain a few bulls on the ASX today as well. But futures are pointing to a 30-point plus rally on the open.

On forex markets, the risk-on mood that flows from the rally in stocks has propelled the Aussie dollar up to just under 72 cents this morning. That’s the highest level since August 28th. The Kiwi and CAD are doing a little better also, while the Norwegian krone was also stronger on the back of oil’s move. Of the majors, only sterling moved materially overnight with a full 1 cent reversal of the previous night’s inflation-induced collapse.

On bond markets, after a small rally yesterday on the Aussie 10s (no doubt after seeing that horrible Westpac leading index of economic growth yesterday) yields are up again this morning in keeping with the move in the US rates markets.

Elsewhere gold rallied (not a typo) back to $1120 and Japan had its credit rating cut by S&P to A+ from AA-. :S

The overnight scoreboard (7.19am AEST):

  • Dow Jones Industrials +0.84% to 16,739
  • Nasdaq Composite +0.59% 4,889
  • S&P 500 +0.87% to 1,995
  • London (FTSE 100) +1.49% to 6,229
  • Frankfurt (DAX) +0.38% to 10,227
  • Tokyo (Nikkei) +0.81% to 18,172
  • Shanghai (composite) +4.89% to 3,152
  • Hong Kong (Hang Seng) +2.39% to 21,927
  • ASX Futures overnight (SPI December) +36 to 5,137
  • AUDUSD: 0.7193
  • EURUSD: 1.1288
  • USDJPY: 120.56
  • GBPUSD: 1.5494
  • USDCAD: 1.3172
  • Nymex Crude (front contract): $47.13
  • Copper (US front contract): $2.4660
  • Gold: $1,120
  • Dalian Iron Ore (January): 394 (denominated in CNY)
  • US 10 year bond rate: 2.29%
  • Australian 10 year bond rate: 2.85%

Now the news. The data in the US was interesting last night. The monthly CPI release for August showed that prices fell, yes fell, 0.1%. But that should be no surprise given that retail sales were lower than expected because of the fall in petrol prices. So it’s important that abstracting volatile items like “food and energy” core CPI prices rose 0.1%. That keeps the year on year pace just below 2% at 1.8%. CPI speaks of an economy that still has no obvious price pressure, YET. But when you look at the employment market, and combine that with the release last night of the NAHB Home Builders index, which hit a 10-year high, you get a picture of an economy that can handle the start of the Fed’s tightening cycle.

– Indeed, last night the OECD released its latest global report saying that the time for zero per cent interest rates is at an end due to diminishing slack in the economy. That’s about the only positive in what is a fairly downbeat view for this year, even though 2016 looks better on their estimations. Here’s the slide that highlights their policy recommendations for the US, Europe, China and emerging markets.

– Even with that advice, the jury is still out on what the Fed will do. I’m with Deutsche Bank and the OECD and reckon it’s time for the Fed to get busy. But when you look at the price action, it wouldn’t surprise me if the soft CPI data and the lower than forecast retail sales this week have combined to give traders a feeling that the Fed will take a pass this week. Of course, these traders aren’t betting the house but the fact that stocks have had a nice little rally in the past two days, after testing the bottom of this wedge pattern, points to a mildly bullish bias. In technical terms, the market is breaking higher. So if the Fed does pass, we could see one heck of a rally. Here’s the chart:

– One thing not too many people have paid attention to with all eyes on the Fed was the TIC data released in the US last night. This data shows what investors are doing when it comes to buying and selling US assets. Importantly we saw some selling of US bonds. Here’s the NAB’s Sydney-based strategist Emma Lawson’s excellent take on the data:

The US TIC data for long term assets showed net buying of US assets, but on Treasuries, there was selling for the first time since January. This isn’t unheard of, but markets will be waiting to see if it is persistent. And yes, there was selling from Belgium, but also from China itself. That is likely to get some attention. But it is definitely worth noting that foreigners were still buying other US assets, even if the reserve managers were potentially selling. All is not lost.

– Swinging back to the Japanese credit rating downgrade, it is worth noting what S&P said was part of the reason for the downgrade. “We believe the likelihood of an economic recovery in Japan strong enough to restore economic support for sovereign creditworthiness commensurate with our previous assessment has diminished,” S&P said. That’s telling and speaks of an economy in decline. But that didn’t worry forex traders who don’t really pay terribly much heed to the rating agencies. The yen was off a little but not materially.

– On the data front today, Kiwi GDP is out this morning as is Japanese trade data. Tonight we get an interest rate decision from the Swiss National Bank, retail sales in the UK and then jobless claims, building permits and Philly Fed in the US. And then at 4am AEST we get the Fed. It’s going to be huge.

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

Woolworths

If you’ve been thinking about where the Woolworths share price might bottom out, the next area of interest on the long term chart is at around $23.60.

Depressingly for shareholders, this takes the form of possible trend line support which runs across the GFC low in 2008 and the “Greek crisis” low in 2011. I’ve described this as “possible” support because it needs to be rejected a third time to qualify as a trend line.

At this level, Woolworths would be trading at around 13 times forecast earnings with a prospective dividend yield of about 5.8%. This sounds okay but on current projections it will be 2019 before this stock delivers higher earnings per share than it did in 2015.

If that’s right, the best shareholders can hope for is for dividends to stay steady over the next few years.

Ric Spooner, chief market analyst, CMC Markets

You can follow Ric on Twitter @ricspooner_CMC

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