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

A quick recap:

The Australian stock market had a shocker yesterday. The NAB was hammered (-4.5%) when it went ex-dividend. That dragged the CBA and ANZ lower but it was the fact that 9 of 10 sectors fell which tells you what a bad day it was on the local market.

So news overnight that US stocks are mildly in the red as traders await the all-important US jobs report at 12.30am AEDT tomorrow will likely put a little more weight on the ASX today. Already the SPI200 December contract is down 11 points indicating a mild down day but the risk is for a deeper fall as investors position before tonight’s data is high. Watch out if 5,150/55 breaks on the physical today.

The risk is also that if the data prints in line with market expectations tonight of 180,000 along with an unemployment rate of 5.1%, bonds and stocks could get hammered as expectations rise of a Fed hike next month.

Key is non-farm payrolls tonight take on even more importance than they usually do given they are so important in the decision process the Fed is using to determine whether to lift rates in December. David Scutt has a great preview. But, for me, we had the clearest signal that the Fed is serious – if the data holds up – in a comment from Atlanta Fed president Dennis Lockhart last night. CommSec’s chief economist Craig James reports this morning that Lockhart said the central bank was successful in shifting market expectations about the possibility of a rate hike at the December meeting. Lock it in Eddie!

Anyway, back to overnight moves and crude was sold heavily again down 2%, gold is at risk of slipping back under $1100 and copper capitulated, losing almost 3% all the way back to $2.25 a pound. No doubt some of this selling is because in the past 24 hours both the RBA and the Bank of England have highlighted fears about Chinese and emerging market growth. But also because any gains commodities are making in recent times just bring out the sellers again. Speaking of falls, iron ore was lower again.

On forex markets the Aussie dollar is in familiar territory this morning, sitting roughly where it was this time yesterday. All the action last night was focused on the pound after the Bank of England left rates on hold and suggested that given the inflation outlook, they would stay there for a while. Sterling is down 1.1% to 1.52 and change. The yen is drifting a little weaker but the Kiwi has fought back and regained the 66 cent level against the big dollar.

On bond markets, US 10s are sitting at 2.23% but the 2-year note has hit a 6-month high of 0.84%. That’s still low but the highest level since 2011. It’s a clear and present danger to stocks.

On the data front today, we get the release of the RBA’s quarterly statement on monetary policy at 9.30am AEDT. The AiGroup PCI will also be out at the same time.

In Germany tonight, it’s industrial production to follow last night’s disappointing -1.7% fall in factory orders. French trade is also out, as is UK manufacturing data.

The overnight scoreboard (8am AEDT, NB: US MArket close is 8am AEDT):

  • Dow Jones Industrials +0.05% to 17,874
  • Nasdaq Composite -0.25% to 5,129
  • S&P 500 -0.05% to 2,101
  • London (FTSE 100) -0.75% to 6,364
  • Frankfurt (DAX) +0.39% to 10,887
  • Tokyo (Nikkei) +1% to 19,116
  • Shanghai (composite) +1.87 to 3,254
  • Hong Kong (Hang Seng)-0.01% to 23,051
  • ASX Futures overnight (SPI December)  -11 to 5,173
  • AUDUSD: 0.7142
  • EURUSD: 1.0873
  • USDJPY: 121.75
  • GBPUSD: 1.5206
  • USDCAD: 1.3165
  • Nymex Crude (front contract): $45.29
  • Copper (US front contract): $2.25
  • Gold: $1,103
  • Dalian Iron Ore (January): 344 (denominated in CNY)
  • US 10 year bond rate: 2.23%
  • Australian 10 year bond rate: 2.74%

Other news:

– Credit, and credit markets are always a little scary when they go haywire. That’s because often, very often, it is in credit markets where the butterfly of global market turmoil first flutters its wings. So news this morning I picked up in the FT about a wild day’s trade on US swaps markets gives me pause. “Swap spreads are insane (today),” one hedge fund manager told the FT after the inversion of normal trade between US swap and bond spreads went to new levels overnight.

The FT reports “10-year swap spreads reached historic lows on Tuesday, moving through their previous -9 basis point low and today that dislocation jumped markedly, plummeting almost 6 basis point to -17.63 bp before bouncing back to -13 bp. Spreads have since moved lower again to -15.75 at 3:30pm in London.”

Something to keep an eye on folks.

– Also something to keep an eye on. Getting far less press than the machinations of the stock market are the moves in bond prices. While US 2-year rates are still incredibly low at 0.845% as noted above, that is the highest level since 2011.

Rates are at a real risk of a break out and, as John Authers from the FT pointed out yesterday, markets aren’t really ready for a bond market funk. I really do think this is the asset price to watch in the week’s ahead. If it hits, and or breaks, 1% the investment landscape will change.

Here’s the chart from my Reuters Eikon:

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

Fairfax Media (FXJ: ASX)

Fairfax provided and update on the current year’s trading at its annual meeting yesterday. They reported a 2-3% increase in overall group revenue. However, it continues to be a case of “thank heavens for Domain”. A 10% increase in the real estate portal’s revenue came to the rescue against a 9% decline in publishing and 11% in the Australian Community media business.

Market reaction to this news was negative with the stock closing down 4.5% at 88c and back below its 40-week moving average. The major trend line support around 83c now looms as a potential test for this stock.

Ric Spooner, chief market analyst, CMC Markets

You can follow Ric on Twitter @ricspooner_CMC

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