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

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A quick recap:
The ASX broke down through important support yesterday and the prospects for another day of weakness are high again after stock markets in the US and Europe fell heavily. Traders appear to have reappraised the impact of the prospective Fed tightening (another speaker doubled down last night) on stock valuations in the wake of the weak Chinese trade data over the weekend.

In the US, with around 20 minutes to go before the close, the Dow is down around 160 points after earlier being down around 200 points. The Nasdaq is off about 0.9% and the S&P 500 is resting on support now at 2,075, down 23 points on last night’s close for a loss of 1.2%.

European bourses were also lower. The FTSE in London is down a little less than 1% but the CAC in Paris and DAX in Frankfurt both lost around 1.5%. That was even with the news via Reuters that a consensus is forming on the ECB’s governing council to take rates deeply negative at the next meeting in a couple of weeks.

So the wash-up for traders today in Australia is that after a 1.83% fall yesterday, a fall which took out important support at 5,150, the market looks set for another down day. On the ASX futures market, the SPI200 December contract is down another 58 points, 1.1%, to 5,059. The price action is very ugly and technicians will be starting to think about a full retracement to the August lows.

In Asia yesterday, the Nikkei surged 2% on the back of the yen’s weakness. Some of this is likely to be given up today after the stock sell-off saw yen buying overnight. In Shanghai, stocks surged. No doubt traders are looking for more easing by the PBOC but also, as David Scutt pointed out yesterday, because debt is back and Chinese investors are embracing it again.

On forex markets, the weakness in stocks has taken the wind from the Australian dollar’s sails as it tried to climb off the mat in European trade. From a low of 0.7013 yesterday morning the Aussie pushed up to 0.7070 before the tractor beam of weaker stocks and eroding sentiment pulled it a little lower. The euro wasn’t hurt by the Reuters story about deep ECB cuts. That’s probably because, like the yen which strengthened from early European weakness, when stocks and sentiment goes off these days the euro goes bid as money flows back home. Sterling is higher, but that’s just technical, while the Kiwi is up around half a per cent and the CAD only a little stronger, dragged back by the continued fall in crude oil.

On that note, no one is happy with the Saudis (see below in Other News) and Nymex crude is below $44 this morning. Gold is up a smidge to $1,091, copper is down a little to $2.23 a pound and the overall CRB commodity index is a little less than 1% lower this morning.

On bond markets, the stock sell off, some might say strangely, didn’t stop the recent move higher in US interest rates. But then again, Boston Fed president Rosengren gave a firm indication that rates are rising in December. Rosengren is seen as a dove, so the first Fed hike since 2006 looks increasingly like a lock. So the impact was that the stocks sell off was ignored. Sure, the 2-year was a tiny bit lower at 0.886% but the 10-year note continues to rise sitting at 2.35% this morning. That’s the highest level since July. 2.50% is the big level to watch although it’s hard to see that breaking just yet. But if it does…

On the data front today, we get the latest update of the Turnbull Optimism Meter with the release of the ANZ’s weekly consumer confidence data. We also get to take the pulse of Australian business with the release of the NAB’s monthly business survey for October and Australian home loan data. Then all eyes will turn to China and the release of all important CPI and PPI data for October at 12.30pm AEDT. The data will be scrutinised for what it implies about pricing power, and thus aggregate demand, in the Chinese economy and what that means for the globe.

In Europe, industrial production is out in France and Italy while in the UK, inflation hearings will be watched closely by sterling and interest rate traders. In the US, we get import and export prices along with wholesale inventories.

The overnight scoreboard (7.40am AEDT, NB: US MArket close is 8am AEDT):

  • Dow Jones Industrials -0.92% to 17,745
  • Nasdaq Composite -0.96% to 5,097
  • S&P 500 -1.11% to 2,0769
  • London (FTSE 100) -0.92% to 6,295
  • Frankfurt (DAX) -1.57% to 10,815
  • Tokyo (Nikkei) +1.96% to 19,642
  • Shanghai (composite) +1.59% to 3,647
  • Hong Kong (Hang Seng)-0.6% to 22,726
  • ASX Futures overnight (SPI December)  -58 to 5,059
  • AUDUSD: 0.7050
  • EURUSD: 1.0756
  • USDJPY: 123.13
  • GBPUSD: 1.5114
  • USDCAD: 1.3274
  • Nymex Crude (front contract): $43.95
  • Copper (US front contract): $2.23
  • Gold: $1,091
  • Dalian Iron Ore (January): 348.5 (denominated in CNY)
  • US 10 year bond rate: 2.35%
  • Australian 10 year bond rate: 2.90%

Other news:

– The OECD has given a clear warning, as if traders need one, that the slowdown in global trade is a worry and a threat to economic growth. It’s also a threat to emerging markets which have allowed their economies to become dangerously leveraged. That’s the part traders will need to keep an eye on – EM currencies and EM corporate bond spreads. That’s where the next bout of market turmoil could start. The Fed’s move will be a factor as well. I’ve written a piece on the OECD’s outlook earlier today. You can find it here.

OPEC’s decision to keep on pumping even as prices for crude fall is causing some pain in the Middle East at the moment. The Saudis say they’ll keep pumping oil through the pain but the oil minister from Oman (not an OPEC member) was apoplectic. The Wall Street Journal reports that he said “this is a commodity that if you have one million barrels a day extra in the market, you just destroy the market”. He added: “We are hurting, we are feeling the pain and we’re taking it like a God-driven crisis. Sorry I don’t buy this, I think we’ve created it ourselves.” Meanwhile the Kuwaiti oil minister said what everyone’s thinking – unless oil producers “work together” (read “Saudis reduce production”), prices will remain low.

Here’s something worth keeping an eye on with regard to Europe and markets more broadly. It seems that a political bun fight could be about to kick off in Portugal with implications for the EU. The NAB’s David Degaris wrote in a note to clients this morning:

Portugal is threatening to flare up as a EUR issue. A month ago in the General Election, the main Socialist Opposition Party won the most seats but under the Constitution was controversially denied the opportunity to form a Government by the President. Today, the four main Socialist parties agreed to form a coalition to unite against austerity. 10 year bonds have risen 15bp to a four month high of 2.83%. The Euro is a touch weaker against a somewhat softer USD.

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

BHP

BHP is under pressure with commodities falling and the disaster at the Brazilian Samarco mine it owns half of. However, its chart provides a few reasons to think that the $19.50- $20.50 zone could turn out to be a low and a turning point for the stock, at least for the medium term.

The first possibility is a “3 drives to a low” pattern as shown on the chart below. As the name implies, this consists of 3 trend lows. In the ideal case there is a fair bit of symmetry about this pattern. You can put at trend line across the lows although it pays to allow a little tolerance in this.

The pattern should also have Fibonacci symmetry. In this case the drives 2 and 3 would both be an approximate 127% expansion of the corrective rally preceding them.

If all this plays out according to the text book, BHP would make a third trend low around the trend line and 127% level near $20.50. The conservative approach to these patterns is not to assume that the market is going to stop at this level but to wait for some evidence that it is beginning to form a base.

If and only if it does this, the pattern is completed and a significant rally could follow.

Ric Spooner, chief market analyst, CMC Markets

You can follow Ric on Twitter @ricspooner_CMC

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