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

Getty/Spencer Platt

A quick recap: There were some big individual moves on US stocks markets last night which has left the Dow and S&P with divergent performances at the end of trade. The Dow finished mildly in the black driven largely by the rally in Du Pont shares of 7.66% after its CEO said she would step down. But the Nasdaq and S&P 500 finished lower on the day.

In Europe, like Japan and to a lesser extent the ASX yesterday, it was a more positive day. Continental exchanges were up around 0.9% while the UK stocks rose around 0.4%.

That’s left the December SPI 200 futures indicating a mildly positive day for the local market today with a gain of 6 points to 5,174.

Elsewhere last night the IMF downgraded it’s growth rate for 2015 to 3.1% and 3.6% in 2016. That doesn’t sound terrible but they see the outlook as clouded by 3 powerful forces that are threatening the global economy. They say it all adds up to lower global growth for longer.

In the US the NAB’s co-head of global currency strategy Ray Attril says there was a “blow-out in the US August trade deficit, to $48.3bn from $41.8bn and though not unexpected it does have US analysts reaching for the crayons to downgrade Q3 GDP forecasts. Surprisingly though, the Atlanta Fed’s “GDP Now” forecast for Q3 growth was lifted last night to 1.1% from 0.9%, citing strong vehicle sales and what it still sees as a positive net export contribution to growth.”

But that weak data helped the Aussie dollar, which was already bid after the sanguine RBA governor’s statement yesterday, push higher again overnight. It is sitting at its highest level since September 21, this morning above 0.7150. The Euro and Pound were also higher even though Attril says that there was “an unexpected slump in German factory goods orders (-1.8%) seen symptomatic of weak global demand conditions and not – as yet – impact from the VW emissions scandal.” The Yen is calm but the CAD and NOK are both benefitting from the rally in oil.

Speaking of oil the front Nymex contract rallied more than 5% and is at its highest level since early September. It hasn’t broken out of the recent trading range yet, see chart below, but traders and central bankers will be watching and hoping. Copper held the previous nights gains, the CRB overall gained close to another 2% and gold is back near $1,150. Iron ore futures in the US were up again and have now been marked almost $2 a tonne higher than the recent low.

On the data front today Australia sees the release of the AiGroup performance of construction index as the only material release. In Japan we get a BoJ monetary policy statement along with the coincident and leading economic indexes. It’s a holiday in China again but that doesn’t stop the release of China’s FX reserve data later today. Tonight in Germany industrial production is out along with French trade and UK manufacturing data. In the US it’s third tier data.

The overnight scoreboard (7.46am AEST):

  • Dow Jones Industrials +0.08% to 16,790
  • Nasdaq Composite -0.69% to 4,748
  • S&P 500 -0.36% to 1,979
  • London (FTSE 100) +0.43% to 6,326
  • Frankfurt (DAX) +0.9% to 9,902
  • Tokyo (Nikkei) +1% to 18,186
  • Shanghai (composite) Closed – last at 3,053
  • Hong Kong (Hang Seng) -0.1% to 21,831
  • ASX Futures overnight (SPI December) +6 to 5,174
  • AUDUSD: 0.7164
  • EURUSD: 1.1271
  • USDJPY: 120.18
  • GBPUSD: 1.5233
  • USDCAD: 1.3024
  • Nymex Crude (front contract): $48.93
  • Copper (US front contract): $2.3625
  • Gold: $1,146
  • Dalian Iron Ore (January): 366.5(denominated in CNY)
  • US 10 year bond rate: 2.03%
  • Australian 10 year bond rate: 2.61%

In other news.

China continues to be the hot topic around markets as traders and investors try to gauge what exactly is going on. It’s hard to know anything exactly other than the 7% growth target is probably a stretch now. But, trying to get some clarity from the fog BI US’s Linnette Lopez has press ganged some of China’s brightest minds into a great article to try and get an idea of just what is going on.

My favourite is slide 8. Christopher Balding, Professor at Peking University HSBC Business School said, “Despite the talk of economic reform, Beijing appears to be increasing its assertiveness over the economy and financial markets merging state owned enterprises to create gigantic firms and increasing debt. Beijing’s ability to manage the economic transition to a slower economy will regardless prove to be one of the defining events of the 21st century.”

Indeed it might be.

– On commodity markets oil ripped higher last night with the front contract for Nymex crude rallying more than 5% to $48.69 a barrel overnight. That was on the back of an upgraded forecast for a tighter balance between supply and demand in 2016 from a US government agency last night. In truth though recent price action in the oil market has been suggestive of a bounce. While many markets tried to retest their August lows in the last week of September, Nymex crude was pretty solid in the post-bounce range. There was solid buying in the mid to high $43 range. Looking ahead oil has been trading in a range but traders will be watching closely if it can break out of its box. That’s important for so many markets if it happens, and could be a sign the August/ September weakness is due for a further reversal across financial markets. It has to break first however.

Here’s the chart traders will be watching:

– Another sign that things may have taken a turn for the better is that the Chicago Board Options Exchange Volatility Index (VIX) has dropped below 20 for the first time since late August. That tells us some fear, and hopefully lots of volatility, is being washed out of the market.

That’s positive for the Aussie dollar against the US dollar and on the crosses and it’s ultimately positive for stocks if earnings season, which starts this week, is better than many forecast.

Here’s the chart:

investing.com-CBOE-Vix-Index

And now from CMC Markets’ Michael McCarthy for today’s Stock of the Day

AWE – Multiplying Energy Gains

Traders and investors unimpressed with the latest round of China bashing could be eyeing energy and mining stocks.

With good reason. There’s potentially duplicate risk pricing in these sectors. Because the value of China imports and exports fell, concerns about the outlook pushed commodity prices lower. Energy and mining stocks fell even further, in expectation that commodity prices would continue their fall. The problem with the reasoning is that much of the fall in value of exports and imports was due to lower commodity prices – while the volume of trade increased in many cases.

This means that if oil and copper prices stabilise at current levels many resource share prices must rise to remove the discount for lower commodity prices. While the Oilsearch’s and Woodsides of this world will benefit, there may be much higher leverage to steady/ higher oil prices via the smaller companies.

AWE fits the bill. Oil operations in the Bass Strait, off Tui, and in Texas, provide steady if unexciting income with reasonable well lives. Significant write downs hit the last result, but leave the balance sheet cleaner. The chart below shows positive momentum, a double bottom and a clear line in the sand at 74.25 cents. Woodside shareholders could be looking at a 20-40% revaluation. AWE shareholders could be looking at a 100% gain back to $1.50.

Michael McCarthy, chief market strategist, CMC Markets

You can follow Michael on Twitter @MMcCarthy_CMC

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