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

Getty/Spencer Platt

Quick Recap: Stock markets were under pressure again last night after the weak lead from Shanghai shook traders’ faith in stocks. The 8.48% fall in the Shanghai Composite was the largest since 2007 and one of the biggest on record. That set the scene for a bad day in Asia, a very weak tone in Europe and weakness in US stocks.

On other markets, the US dollar lost ground against the euro, yen and pound but the Aussie dollar remains under pressure given the risk-off tone and continued weakness in commodities. Crude was down again, gold dipped back and Dr Copper was also lower. Unsurprisingly, amidst the carnage on stocks and commodity markets, bonds rallied.

The overnight scoreboard (6.38am AEST):

  • Dow Jones down 0.73% to 17,440
  • Nasdaq down 0.96% to 5,038
  • S&P 500 down 0.58% to 2,067
  • London (FTSE 100) down 1.13% to 6,505
  • Frankfurt (DAX) down 2.56% to 11,056
  • Tokyo (Nikkei) down 0.95% to 20,350
  • Shanghai (composite) down 8.48% to 3,725
  • Hong Kong (Hang Seng) down 3.09% to 24,351
  • ASX Futures overnight (SPI September) -43 to 5,491. That’s still higher than Saturday’s close :S
  • AUDUSD: 0.7268
  • EURUSD: 1.1090
  • USDJPY: 123.23
  • GBPUSD: 1.5555
  • USDCAD: 1.3043
  • Crude: $47.06
  • Gold: $1,092
  • Dalian Iron Ore (September): 388

Now the news. It’s all about China this morning as traders wonder what the next step in this dance between regulators and market forces will be. Westpac’s New Zealand based strategist Imre Speizer said that after the massive fall yesterday the “China Securities Regulatory Commission later said it would intervene”. David Scutt has more on that here. The impact of the announcement overnight pushed bonds a bit higher but exactly what extra measures the CSRC can take, given all that has gone before and the massive line of credit that brokers and banks have to support the market, is difficult to fathom. But there is more than financial stability at stake here, there is the pride of not only the CSRC but also the Chinese Communist Party. The battle rages and genuine sellers’ exit positions – due to margin calls or fear of more loses – are hard to defeat unless all selling is banned from the government/agency stands in the market.

– On the data front, Westpac’s Speizer said:

US durable goods orders jumped 3.4% in June after a 2.1% fall in May, beating the 3.2% estimate (however back revisions were worth -0.3%). The jump is mainly due to a surge in non-defence aircraft orders. Stripping these out leaves Q2 investment slightly weaker than previously expected. German business sentiment rose in July. The recovery appears to have continued despite the Greek crisis, albeit at a moderate pace.

– Now to stocks. It seems the reason that Europe did so much worse than the US and UK was that European sectors, such as car and industrial sectors, were hammered by concerns over China. But it is important to note that while the Shanghai stock market spooked people, what has also occurred is that the manipulation of the stock market by the CCP and the uncanny ability of Chinese GDP to print 7% has eroded confidence in the official numbers. So traders are selling as much on weak Chinese stocks as they are on a fervent belief that the Chinese economy is in a much weaker state than being officially reported. In the US, we have GDP and the FOMC this week which is adding to the caution over and above the issues in China. Craig James from CommSec said this morning that “nine of the 10 major S&P 500 sectors were lower, with the energy index leading the declines, down 1.7%”. Indeed crude crashed again. More on that later.

– Turning to the ASX this morning, and it’s worth noting there was a lot of head scratching yesterday on the performance of the stock market here in Australia. It went against the grain of Asian trade and that of the lead from futures on Saturday. The question now is what happens today? Can the local market buck the offshore trend, as it has quite a few times in recent weeks or does the ASX 200 need to play catch up and drop heavily? I have no idea but futures traders are having a bob each way. They’ve knocked 43 points off the September futures BUT that’s still higher than Saturday morning’s SPI 200 close, even though Wall Street is down for the 5th session in a row.

– Turning to Asia and it’s all about Shanghai. Yesterday afternoon David Scutt wrote:

The benchmark Shanghai Composite index was crushed, falling 8.48%, or 345 points. The decline was the largest in percentage terms since February 27, 2007 — over eight years ago. From Thursday’s close the index has now lost close to 10%.No sector escaped the carnage. Energy, industrials, materials, healthcare, technology and telecommunications all finished with declines of more than 8%. Utilities, down 7.68%, was the relative outperformer.

The battle will continue today.

– On bond markets, you couldn’t have Wall Street down five days in a row, Continental Europe stock markets under pressure and Asia getting hammered without an associated rally in interest rates and bonds. Last night, US 10s rallied down to 2.24%. This tone is important because it dropped Australian 10-year yields back to 2.70% – the early June lows.

– On forex markets, the Aussie dollar is clearly out of favour given the weakness in commodities. Yesterday we covered a note from Goldman Sachs saying there are three forces driving commodities in a self-reinforcing negative feedback loop. It’s a recognition that has traders unwilling to buy Aussie dollars until they can see a break in the fall of commodities or a change in tone in the local economy. So the Battler is once again plumbing 6-year lows this morning.

Elsewhere on foreign exchange markets, it’s a different story with the euro up above 1.11 at one point last night. Likewise, the Kiwi is doing much better than the Aussie and is up around half a per cent on the past 24 hours, as are the yen and pound. – September crude 28072015

– Also supporting the bond market rally is the continued fall in Nymex, and other, crude. Last night it dipped 2.5% across the board. It looks like this is headed back to the recent lows. That’s a position the Goldman note above would implicitly support. Dr Copper is also lower losing another 1.3% to $2.35 a pound. Gold dipped again but iron ore just keeps on keeping on and rallied in China and again overnight.

– On the data front today, it’s fairly quiet. ANZ consumer confidence in Australia. Q2 GDP in the UK will be huge for sterling and expectations of the BoE tightening cycle and tonight in the US we have Markit PMIs and Case Shiller house prices.

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


I featured Caltex as a stock to watch recently after it released guidance for a 45% increase in half year profit. At the time the chart was flirting with the resistance of a bullish head and shoulder pattern.
As things turned out, the share price did break above the neck line of the head and shoulder but has so far failed to go on with the rally. In the process it has returned to a horizontal support and resistance line around $34 that has acted as a “point of control” in the Caltex chart since March last year.
I write this piece from the perspective of a relatively bullish outlook on Caltex. If anything, lower oil prices will tend to help Caltex to the extent they are not offset by a weaker $AU. They will reduce working capital requirements, potentially improve demand and tend to work in favour of refining margins. Caltex has relatively defensive characteristics, producing and selling a staple product and with a much improved balance sheet, there is potential for capital management.
With this in mind, the Caltex chart provides a couple of possibilities. One might be to buy if price drifts lower and again rejects support just below this control line around $33.50. The other may be to buy on a break clear of resistance above the line around $34.50 looking for a rally to around $36-37.

Ric Spooner, chief market analyst, CMC Markets

You can follow Ric on Twitter @ricspooner_CMC

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at