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

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A quick recap:

It’s all red ink this morning as the weakness in stocks across Asia yesterday filtered into European trade and infected sentiment in the US. That’s hurt risk assets with the Australian, Kiwi and Canadian dollars all lower. Likewise, crude oil is off again and copper has fallen more than a cent.

Ostensibly the catalyst is the continued impact of the Chinese trade data yesterday. While the trade surplus crushed expectations of a $46.8 billion surplus with a print of $60.34 billion, the concern for traders is that the import collapse continued to accelerate from -13.8% in August to -17.7% in September. That’s got traders worried that the internal Chinese economic picture remains weak. On a bright note however, exports are almost back into growth territory with the year on year fall slowing from 5.5% to just 1.1%.

But, with the exception of the Shanghai composite which finished just in the black yesterday, all the big indexes are lower this morning. That’s left the ASX pointing lower again down 32 points with a little over 20 minutes of trade in US markets left this morning.

While Chinese data might be the catalyst we can point to, it’s really all just part of the market’s recovery from the August lows. It now looks like many markets have found resistance and need a fresh positive catalyst to kick higher. In my best Lleyton voice: “Come on US earnings season, come on!”

On forex markets, the Aussie has pulled back 1.22% from 7am yesterday and is more than a cent off this week’s high. The Kiwi is doing relatively better as is the CAD. Euro and yen have rallied, and sterling has outperformed even though it had a huge miss on inflation last night with consumer prices fallen back into deflation. All of which suggests that globally traders and investors agree with Westpac’s Bill Evans and Rob Rennie that the Aussie dollar is going to move well under 70 cents.

On commodity markets, after a little rally in Asia yesterday, Nymex crude has lost another 0.7%. The price of gold is higher again as it seems to be benefiting from the uncertainty, as is the CBOE VIX index which is up again as stocks slide. Copper is back below $2.40 a pound while iron ore prices dipped back a little.

On the day today, the key highlight is the release of the Westpac Melbourne Institute Consumer Sentiment survey for October. Given the recent recovery in markets and change of political leadership in Australia, some sort of bounce is expected. Then it’s China again with the CPI for September released along with Japanese corporate goods prices.

Tonight we get more inflation data in France, Spain and Italy while the UK releases employment data and the EU has industrial production data out. In the US, it’s retail sales, producer prices and the Fed’s Beige book.

The overnight scoreboard (6.42am ADST):

  • Dow Jones Industrials -0.32% to 17,077
  • Nasdaq Composite -0.86% to 4,795
  • S&P 500 -0.67% to 2,003
  • London (FTSE 100) -0.45% to 6,342
  • Frankfurt (DAX) -0.86% to 10,032
  • Tokyo (Nikkei) -1.11% to 18,234
  • Shanghai (composite)+0.18% to 3,293
  • Hong Kong (Hang Seng) -0.57% to 22,600
  • ASX Futures overnight (SPI December) -32 to 5,158
  • AUDUSD: 0.7261
  • EURUSD: 1.1392
  • USDJPY: 119.73
  • GBPUSD: 1.5260
  • USDCAD: 1.3012
  • Nymex Crude (front contract): $46.53
  • Copper (US front contract): $2.39
  • Gold: $1,165
  • Dalian Iron Ore (January): 378 (denominated in CNY)
  • US 10 year bond rate: 2.05%
  • Australian 10 year bond rate: 2.67%

Other news:

– Markets have had a mini crash, sharp recovery, consolidation, and now rally over the past couple of months. All of the moves since the mini-crash have been consistent with what I have seen in many markets over many time frames over the past 25 years. It’s also entirely consistent with the history of markets that pre-dates my experience but which I have studied.

The reason I raise this is that the faltering rally we are seeing markets at the moment – stocks, commodities, commodity currencies, risk assets – is also entirely consistent with my experience. The tie that binds these multiple markets, timeframes and history together is uncertainty.

Uncertainty is inherent in markets but there is a real sense that traders are worried about “something” happening that they haven’t expected. That’s a theme picked up by BI US colleague Myles Udland in his piece this morning highlighting it’s never been more expensive for investors to protect against a “Black Swan”.

Myles highlights that the cost of out of the money options – the ones that cover traders for unexpected, or black swan, events – are super expensive at the moment and have taken the skew to an all-time high.

It highlights that traders don’t trust the recovery. Uncertainty remains high.

The debate about the Fed continues. This week we’ve already had Dennis Lockhart put December firmly on the table, Charles Evans take it off and now it seems that two more Fed speakers last night have backed the Fed hike into 2016. Myles again reports that two of Janet Yellen’s closest allies may have just put the nail in the coffin on rate hikes this year.

Myles wrote:

On Monday, Fed governor Lael Brainard said the way Janet Yellen and Stanley Fischer are talking about monetary policy is all wrong.

University of Oregon economist Tim Duy argued that Brainard’s speech amounted to a “policy bomb.”

On Tuesday, Fed governor Daniel Tarullo told CNBC that “I wouldn’t expect it would be appropriate to raise rates” this year.

Tarullo and Brainard, as Fed governors, are voting members of the FOMC, the Fed’s committee that votes on monetary policy.

I missed the Brainard speech but it’s a cracker. From a markets perspective however, we still need a positive catalyst, over and above no Fed hike, to drive stocks and sentiment higher.

As highlighted on Monday, oil hit the very important 200-day moving average on Friday and sellers re-entered the market ahead of this very important technical level. Overnight the price fell again and it’s down around $3 a barrel in Nymex terms over the past few sessions.

The FT reports this morning that the International Energy Agency says the oil market glut will persist through 2016. The paper reported the IEA said:

“Oil at $50 a barrel is a powerful driver in rebalancing the global oil market,” the IEA said in its closely watched monthly report. “But a projected marked slowdown in demand growth next year and the anticipated arrival of additional Iranian barrels . . . are likely to keep the market oversupplied through 2016.”

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

Santos

At its peak on Friday, Santos’s share price was 52% above the low it hit on 30 September. This volatility reflects not only the energy producer’s leverage to oil prices but also the fact that it’s in a transformational stage. It has a new CEO and is likely to undertake major asset sales as it seeks to shore up its balance sheet.

Chartists will be interested to see that Friday’s high was a neat 38.2% Fibonacci retracement of the last major decline in Santos’s share price. Rejections of this retracement level often turn out to be the first stage in a larger corrective rally as opposed to the finish of the whole correction. If things play out this way, Santos could now see a dip in price followed by another rally, perhaps to resistance around the 200 day moving average or 61.8% Fibonacci retracement. At present these coincide at around $7.18

Ric Spooner, chief market analyst, CMC Markets

You can follow Ric on Twitter @ricspooner_CMC

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