Trading Day: live markets coverage; Value emerging from ‘abyss’?; plus analysis and opinion
The ASX closes higher after a late rally, while analysts revisit big bank shares in the wake of a serving from the market.
And that’s the Trading Day blog for Thursday, February 8.
Samantha Bailey 4.27pm: Local shares snub weak leads
The local share market finished the session slightly higher after a day of choppy trade, shrugging off weakness imparted by the oil and US equity markets.
At the close of trade, the benchmark S&P/ASX200 was up 13.891 points or 0.24 per cent at 5890.699 points. The broader All Ordinaries index was up 13.662 points or 0.23 per cent, at 5995.199 points.
The day’s session saw the market bounce around the 200 day moving average for the second day this week.
Tribeca deputy portfolio manager Jun Bei Liu said the market got off to a shaky start following mixed leads from Wall Street, as US 10-bond yields continued to rally, adding 3 basis points overnight, adding to a 10 basis point rise the night before.
“The market opened weaker following mixed leads from US markets as the bond yield rallied,” said.
“However, we’ve seen domestic buying step back in.
“We are at the beginning of the reporting season, investors are really positioning themselves for the earnings.”
In financials, Commonwealth Bank lowered 0.36 per cent to $76.51 while Westpac edged 0.33 per cent higher to $30.40. ANZ strengthened 0.79 per cent to $27.99.
NAB shot up 2.34 per cent to $28.90 after revealing a costs-related slip in earnings that paved the way for an early dip on which bargain hunters swooped — read more
Eli Greenblat 4.15pm: Shareholder cripples Lew’s Myer bid
Solomon Lew’s new bid to tip out the entire board of Myer at an EGM could be dead on arrival after the department store’s second biggest shareholder, Investors Mutual boss Anton Tagliaferro, again raised the problem that Mr Lew’s companies were director competitors with Myer and publicly gave his support for both Myer’s current directors and senior management.
Mr Tagliaferro also commended Myer’s new chairman (and Mr Lew’s new arch enemy) Garry Hounsell for bringing new energy to the company and the retailer’s recent management changes and cost cutting, revealing that the fund manager was not supportive at this stage of Mr Lew’s plans to call an EGM and replace the entire board with new directors — read more
MYR closed up 0.2pc on 64.5 cents
4.11pm: ASX200 seals late recovery
The S&P/ASX200 index closes up 0.2pc on 5890.7 after a late break higher brought conviction to its session-long rally from steep opening loses up to 0.8 per cent.
More to come.
3.58pm: CBA value from the ‘abyss’: Bell Potter
“We have no reason to change [our] $83.90 price target,” says Bell Potter, the investment bank right behind Commonwealth Bank shares after the market took a sour view of its first-half results announced yesterday.
Provisions relating to potential remediation related to Austrac and looming Royal Commission action lurked behind a decline in CBA’s first-halt profit to $4.74bn, however Bell Potter expects a 15.1pc total shareholder return from CBA over the next 12 months and a “potential capital release” following its recent review of wealth management arm Colonial First State Asset Management.
“We see value emerging from this abyss following the recent share price pullback and reinstate CBA’s “buy” rating,” says Bell Potter analyst TS Lim.
CBA last up 0.2pc on $76.97
Read: NAB value ‘too hard to ignore’: Citi
Read: NAB uncertainty remains, ‘sell’: UBS
Michael Roddan 3.54pm: Banks forced to share credit data
Australia’s largest banks will be forced to hand over customer data to competitors showing good credit histories, under new legislation released for consultation by the Turnbull Government on Thursday, which will allow smaller lenders to offer better deals to borrowers.
According to the draft legislation, banks will be required to have 50 per cent of their credit data ready for reporting by the start of July, increasing to 100 per cent a year later. Banks can also be fined $2.1 million every time they fail to update credit reporting information, which will be monitored by the Australian Securities & Investments Commission.
3.42pm: Michael Hill flags tarnished performance
Jewellery chain Michael Hill International expects its half year earnings to drop by almost two-thirds because of the closure of its US stores and efforts to improve its struggling charm brand Emma & Roe.
The company expects to report pre-tax earnings of approximately $15 million for the six months to December 31, down from $40 million in same period a year earlier, following $20 million in closure costs.
Chief executive Phil Taylor said despite the one-off impacts, the brand reposition of Emma & Roe and the planned exit of its US operations are critical to strengthening the company’s foundations — AAP
MHJ last down 5.8pc
Bridget Carter 3.40pm: Quadrant seeks Rockpool sale interest
Quadrant Private Equity has called for pitches from investment banks to sell the Rockpool Dining Group, which includes the restaurant operations of celebrity chef Neil Perry.
The company — which has been renamed from Urban Purveyor — has been built up into a business estimated to be worth around $1 billion through a string of acquisitions and sources in the market have pointed to investment bank UBS as well placed.
However, sources close to the situation said that no appointment had yet been made.
3.26pm: ASX200 makes late break higher
After a near session-long, unconvincing recovery steep opening losses, the local share makes a clean break into positive terriroty with less than half an hour of trade remaining.
The S&P/ASX200 index last traded up 0.2 per cent on 5889.4.
2.58pm: NAB uncertainty remains, ‘sell’: UBS
UBS has kept its “sell” rating on NAB after its trading update today.
“We have left our forecasts unchanged, and continue to incorporate a $650m restructuring provision in 2Q18,” UBS analyst Jon Mott says.
“However, we remain concerned that its restructuring — including 6,000 gross redundancies or 18 per cent of headcount — is likely to be disruptive at a time when the revenue environment is challenging and the regulatory environment is hostile.”
This leaves UBS going head against Citi who upgraded NAB to “buy” today.
NAB last up 2.4pc at $28.93.
2.43pm: Stocks toy with positive territory
The S&P/ASX200 hovers near flat, last up 3 points on 5878.3 as strength in NAB and Telstra trades off against big mining stock weakness weighs on the broader sharemarket.
Matt Chambers 2.29pm: Orica chief calls for tax overhaul
Orica chief executive Alberto Calderon says the nation’s tax regimen needs changing to spur more private investment if Australia is to continue its long run of growth as mining and housing slow.
But the head of the explosives maker and Harvard-educated economist said across-the-board tax cuts were probably not the best way to spur investment because of the nation’s franking credit system — read more
ORI last $18.51
2.12pm: China trade surplus shy of forecasts
China’s January trade balance came in shy of economists forecasts due to an unexpected surge in imports, the state-nation posting a 135.8bn yuan surplus compared to a 330bn yuan surplus expected.
Imports rose 30.2 per cent in yuan terms over the period vs. 5.3 per cent growth forecast, while exports rose 6 per cent vs. 2.6 per cent forecast — read more
2.05pm: Mineral Resources lifts profit, dividend
Mineral Resources booked $163 million in net profit over the first-half of FY18, a 16 per cent increase on the same period a year prior.
Alongside results, the miner announced a 19 per cent increase in its interim dividend to 25c per share.
MIN last up 0.7pc on $18.40
1.33pm: The art of Venezeula’s monetary destruction
Venezuela’s currency has lost so much value that people simply throw away their small bills — they are virtually worthless anyway.
Enter Wilmer Rojas, 25, who scoops them up off the street, uses an origami-like folding technique, a needle and thread to make handbags with an eye to selling them — maybe even abroad, where people have real money.
Rojas can use as many as 800 bills to make such a purse. And if you add up the face value of all that money, it’s enough to buy ... half a kilo (one pound) of rice. Rojas and his wife have three kids to feed, and another is on the way.
He hopes to start selling his creations soon. But he fears Venezuela’s economic crisis may foil his plans.
“People throw them away because they are no good to buy anything. No one even accepts them anymore,” Rojas told AFP outside a subway station, where he also sells coffee and cigarettes in addition to his unusual bag-weaving work.
“Here, people barely have enough to put food on the table and are not going to shell out money for something that required a lot of work,” he says.
In downtown Caracas, other hungry artisans are selling woven bags like these. They get as much as 300,000 bolivars for one of them. That will buy you a kilo of meat.
Inflation in this oil-rich, cash-poor economy churns on and on: since August, the bolivar has lost 87 per cent of its value against the euro.
Inflation this year is forecast by the International Monetary Fund to come in at a staggering 13,000 per cent.
AFP
1.25pm: Aberdeen said to back Elliot’s BHP push
Bloomberg News reports significant BHP shareholder Aberdeen Young says it would support activist hedgefund and shareholder Elliot’s push to dismantle the dual listing structure of the mining giant.
BHP last $29.41
1.04pm: ASX gosling VGI goes long
Newly-listed stock picker VGI shows some insight into what’s on its radar.
The $1.1 billion Rob Luciano-run fund prefers global shares.
In terms of its top five long exposures it likes derivatives exchange CME Group, New York-listed consumer goods business Colgate Palmolive, Atlanta-based Coca-Cola, real estate portal Zillow Group and US industrial gases company Praxair Inc.
The comments are made in VGI’s presentation to investors.
While VGI is better known as a short seller in the Australian market, only 10 per cent of its fund is linked to short selling and on these targets it remains silent.
Some 35 per cent of VGI’s fund is on long exposures.
12.45pm: NAB value ‘too hard to ignore’: Citi
City has upgraded NAB to “buy” from “neutral” after its trading update, maintaining its 12-month target price of $32.25 on the stock.
NAB shares have hit resistance today from former support at $29.00, while clearly finding strong support near $28.00 today due to the dividend yield.
Capped at $29.00, it could still test the major Fibonacci retracement at $27.75.
NAB last up 2.4pc at $28.90.
12.36pm: 7 stocks where consensus is wrong — Macquarie
As earnings season fires up this week, Macquarie has listed seven stocks in the top 200 for which it has the highest-conviction that their consensus earnings estimates will change.
On the long side, the stocks that its analysts believe have the most chance of consensus upgrades are Monadelphous, Reliance Worldwide, Boral, AUB Group and Nine Entertainment.
On the short side, those that are most likely to cop consensus downgrades are Cromwell Property Group and Myer.
For these seven stocks, Macquarie has a “highly differentiated earnings view versus consensus.”
12.14pm: ASX200 index turns positive
The S&P/ASX200 index last traded 3 points higher on 5877.9, recovering from earlier losses led by heavyweight miners.
NAB (+2.7pc) and Telstra (+1.7pc) are the best performers in the top 10.
11.53am: Local shares attempt recovery
The local sharemarket pieces together a valiant attempt to recover the morning’s losses after a volatile Wall Street eventually closed lower and served a weak lead to local investors.
The benchmark S&P./ASX200 index last traded down 0.2 pc on 5865.7 on volume slightly above average at this point in the session.
Heavyweight miners BHP and Rio Tinto prove the biggest drag following earnings results from the latter and weakness in oil and base metal markets, while a firm push by NAB and Telstra provide pockets of shelter.
Read: NAB ‘long-term value’: Macquarie
Read: Stocks due for 8 ball shake
11.39am: Big mistake by stock market: Trump
President Donald Trump broke his silence on the stock market’s recent volatility, arguing that what is good for Main Street should be good for Wall Street and that investors are making a mistake it they don’t propel the market higher.
“In the ‘old days,’ “ when good news was reported, the Stock Market would go up. Today, when good news is reported, the Stock Market goes down,” Mr Trump tweeted. “Big mistake, and we have so much good (great) news about the economy!” — read more
In the “old days,†when good news was reported, the Stock Market would go up. Today, when good news is reported, the Stock Market goes down. Big mistake, and we have so much good (great) news about the economy!
— Donald J. Trump (@realDonaldTrump) February 7, 2018
Samantha Bailey 11.30am: Business conditions on the up: NAB
Business conditions remained solid in the December quarter due to improvements in the labour market but business confidence lagged, widening the divide between the new measures.
Improvements in employment prompted the business conditions index rose 1 point to +15, well above the long run average, while trading conditions eased and profitability was steady, according to the NAB Quarterly Business Survey.
“The survey’s measure of both near-term and longer-term hiring intentions picked up, while firms are reporting increased difficulty finding suitable labour,” said NAB chief economist Alan Oster.
“[This] tends to have a high correlation with the unemployment rate and could foreshadow some upward momentum in wages growth” — read more
11.24am: NAB ‘longer-term value’: Macquarie
Macquarie continues to see “longer-term value” in NAB shares at the current level and keeps its outperform rating following the bank’s quarterly update earlier today.
“In our view, elevated expense growth coupled with the dilutionary impact of discounted DRPs will result in weakest earnings growth for NAB within the sector in FY18,” the broker says.
“However, we believe this is captured in NAB’s current valuation.”
It notes that NAB shares are trading at a 5 per cent discount to peers, a 34 per cent discount to all benchmark industrials and offers a 7 per cent dividend yield assuming its FY18 distribution can be sustained.
“Consistent with our expectations, NAB’s margins were ‘broadly stable’ ex markets and treasury,’ Macquarie adds.
“While we continue to expect bank margins to be impacted by the re-emergence of competitive pressures in a low-growth environment, we believe this issue presents a greater risk for the overweight retail banks. Moreover, we expect improved funding costs to offset some of these pressures and forecast broadly stable margins for NAB in FY18.”
The market seems to agree as NAB shares are up 1.5pc at $28.68 after hitting an 14-month low of $28.01.
Eli Greenblat 11.12am: Garnsey joins Flight Centre board
Fashion and retail executive Colette Garnsey has made a return to the corporate scene after a bout of ill health last year forced her to step down from her role as core brand director at Solomon Lew’s Just Group, to be formally appointed a non-executive director of Flight Centre.
Flight Centre announced this morning the appointment of Ms Garnsey to its board, spruiking her as one of Australia’s most respected retail sector leaders with more than 30 years senior management experience which included roles at David Jones, Pacific Brands and more recently Mr Lew’s Premier Investments which owns Just Group — read more
FLT last $50.21
11.05am: Copper slides from growth hope heights
Jan Harvey writes:
Copper fell almost 3 per cent and other base metals have turned lower as stock markets resume this week’s volatile trading while concerns that fundamentals do not justify current price levels have also weighed on the red metal.
Copper, chiefly used in construction, has struggled to make headway this year after rallying to a near four-year high late last year on expectations that global growth would drive demand higher.
“Instead of just focusing on the global growth outlook, which is positive, you should keep an eye on what we call China’s old economy — the property market, the infrastructure segment,” Julius Baer analyst Carsten Menke said.
“That’s where we expect a slowdown sometime this year.” “China’s property sector consumes more copper than the US alone,” he said.
Reuters
10.44am: Deal eases US shutdown concern
Senate leaders brokered a long-elusive budget agreement Wednesday that would shower the Pentagon and domestic programs with an extra $300 billion over the next two years. But both Democratic liberals and GOP tea party forces swung against the plan, raising questions about its chances just a day before the latest government shutdown deadline.
The measure was a win for Republican allies of the Pentagon and for Democrats seeking more for infrastructure projects and combating opioid abuse. But it represented a bitter defeat for many liberal Democrats who sought to use the party’s leverage on the budget to resolve the plight of immigrant “Dreamers” who face deportation after being brought to the U.S. illegally as children. The deal does not address immigration.
Senate leaders hope to approve the measure Thursday and send it to the House for a confirming vote before the government begins to shut down Thursday at midnight. But hurdles remain to avert the second shutdown in a month. While Senate Democrats celebrated the moment of rare bipartisanship — Minority Leader Chuck Schumer called it a “genuine breakthrough” — progressives and activists blasted them for leaving immigrants in legislative limbo.
AP
10.29am: Theatrics as cable powers Fox
Cable TV networks powered revenue growth at 21st Century Fox in the December quarter, but higher costs related to sports programming and theatrical releases weighed on operating profit.
Fox booked a $US1.34 billion benefit tied to the US tax overhaul that more than doubled its quarterly net profit.
The quarterly report is the first since 21st Century Fox in December agreed to sell most of its entertainment assets to Walt Disney in a $US52.4 billion deal. Disney will get the Twentieth Century Fox film and TV studio, some US cable TV networks and international assets, including Fox’s 39 per cent stake in UK pay TV giant Sky — read more
Dow Jones Newswires
10.14am: ASX falls at the open
The S&P/ASX200 index falls 0.7 per cent at the open to 5838, carrying over a weak lead from Wall Street after a volatile night of trade.
NAB swings 0.7 per cent higher after previously hitting a 14-month low of $20.01 in early trade following its quarterly update. A fall in net interest margin over the period presents risk but in gross dividend yield terms, above 10pc is now near irresistible.
AMP is the strongest stock in the top 200 after returning to first-half profitability.
Tabcorp is the worst top 200 performer after revealing a decline in first-half profit led by provisions for its UK Sun Bet arm and Tatts Group acquisition.
Origin Energy is down 2.5 per cent to $8.72 after it flagged over $533m in writedowns.
The largest stock on the bourse BHP is doing most of the damage alongside a decline in oil and base metals markets, undone 2 per cent to $29.27 in early trade versus its ADR’s equivalent close at $29.65
The stock’s close relative to the 50-DMA at $29.41 looks key.
The local currency remains down 0.1 per cent on $US78.14 cents ahead of NAB’s domestic business survey over the fourth quarter due 11.30am (AEDT) as the next risk event.
9.42am: Deutsche to push float amid volatility
Scott Murdoch and Bridget Carter write:
The decision by Deutsche Bank to float its Asset Management (AM) business is expected to gain momentum soon, with the current market volatility not considered serious enough to prompt a change.
The global bank revealed in March last year that it would sell 25 per cent of the €8 billion ($12.6bn) business, which is also being rebranded to DWS.
At the time of the announcement, Deutsche Bank chief executive John Cryan said the IPO could take two years to complete, however, that time frame has been brought forward.
9.31am: ASX200 downside risk rears head
Despite an upside indication from the local futures trade, Australia’s S & P/ASX 200 share index should be flat to slightly weaker today after late selling left Wall Street in the red.
After rising as much as 1.5pc, the DJIA closed own 0.1pc, while the S & P 500 closed down 0.5pc after rising 0.1pc.
Interestingly the Nasdaq 100 finished down 0.9pc and near the day’s low of 7051.53.
After bouncing off their 100-DMA’s on Tuesday, all three of the major US indexes shied off their 50 DMAs last night.
As such, while the DJIA has already had a 10 per cent correction from the record high, the lows could now be retested.
While the Asia/Pacific region rightly anticipated the pullback on Wall Street overnight, the pressure will still be to the downside today.
As well as the late fall in US shares, the VIX index bounced from a low of 21.2 to a still-elevated 27.7 per cent.
While European shares finally bounced along with US Treasury bond yields and gold fell, risk aversion was evident elsewhere.
Apart from the weak close on Wall Street, risk currencies fell at the expense of the Japanese yen.
And in commodity markets, WTI crude dived 2.6pc and copper and nickel fell almost 3 per cent.
Energy, IT, Materials, Utilties and Real Estate were the worst performing sectors on Wall Street.
Overall it looks like yesterday was just the eye of the storm, with more volatility to come.
In that case the S & P/ASX 200 could retest support from its 200-DMA at 5846 and possibly Tuesday’s low at 5800.
China trade data is the main focus today, along with a speech from RBA Governor Philip Lowe at 8.00pm (AEDT)
In equities news, AMP, AGL Energy, Mirvac, and Tabcorp post interim results, National Australia Bank provides a quarterly update and BHP Billiton is expected to make an announcement regarding Olympic Dam.
S & P/ASX200 last 5876.8
AAP
Matt Chambers 9.26am: Rio riches for shareholders
Rio Tinto shareholders are feeling the glow of strong commodities prices and continued confidence in future global growth, receiving a record dividend and an extra $US1 billion ($1.3bn) buyback after the miner logged its highest full-year profit in seven years.
The federal government will also share in the spoils, with Rio declaring it will pay a $US1.2bn tax bill on its West Australian iron ore operations.
Rio’s 2017 underlying profit rose 69 per cent to $US8.627bn on the back of surging commodities prices, just clearing analyst expectations of $US8.58bn.
Statutory earnings were $US8.8bn, the highest since 2010 — read more
RIO last $78.31
Michael Roddan 9.23am: Narev stands firm on CBA haul
Commonwealth Bank chief executive Ian Narev has used his last earnings announcement to defy critics who argue that the bank has been too profitable at the expense of customers and regulatory compliance.
CBA, which is facing two Federal Court legal suits over wideranging money-laundering claims and allegations it rigged a key interest rate benchmark, along with a royal commission and a shareholder class action, yesterday booked a cash profit of $4.73 billion for the six months to the end of December — read more
CBA last $76.79
9.08am: Tabcorp hit by Tatts, Sun Bet costs
Tabcorp has flagged a decline in profitability over the first-half of FY18 due to “onerous” contract provisions from its UK Sun Bets venture and costs relating the acquisition of domestic rival Tatts Group.
Statutory net profit declined 58 per cent to $24.6m in the period, while excluding these significant items profit fell 20 per cent on an underlying basis to $82m.
Tabcorp revenues rose 19 per cent to $1.4bn led by “strong customer acquisition” and turnover growth, the latter underlined by a 16.5 per cent increase from that in its digital arm.
Alongside results, the gaming giant announced an 11c per share interim dividend and says it will continue to consider a share buyback or other capital management initiatives — read more
TAB last $5.11
8.55am: Analyst rating changes
CBA raised to Buy — Bell Potter
Integrated Research raised to Buy — Bell Potter
Transurban raised to Add — Morgans
Transurban cut to Neutral — Goldman Sachs
Macquarie Atlas cut to Sell — Goldman Sachs
Sonic Healthcare raised to Neutral — Credit Suisse
Genworth raised to Neutral — Evans & Partners
Greencross cut to Neutral — UBS
Carsales.com raised to Neutral — UBS
Steadfast raised to Buy — Morningstar
Carsales.com cut to Neutral — Macquarie
Carsales.com cut to Sell — Citi
8.49am: AGL lifts profit, dividend
AGL Energy booked a 91 per cent increase in first-half statutory net profit to $622m in FY18, while underlying profit grew 27 per cent over the same period to $493m.
Strong margin growth in its wholesale arm offsetting a relatively small decline in its Customer Markets business aided the result, as did a $127m valuation increase in the company’s financial instruments used for hedging activities.
Alongside results, the company announced a 54c per share interim dividend representing a 32 pe cent increase on the same distribution a year prior.
AGL continues to expect FY18 underlying profit after tax within the previously stated range of $940m to $1.04bn — read more
AGL last $22.47
8.37am: Origin Energy flags $533m writedown
Origin Energy says it expects to recognise total post-tax impairment charges of $533m for the first-half of FY18, led by a $360 writedown relating to its Ironbark gas field operations — read more
ORG last $8.95
8.29am: Mirvac net profit slides
Mirvac statutory net profit fell in the first-half of FY18 to $465 million, the company flagging lower property revaluation gains and rent settlement timing as dragging on the result.
The developer has announced plans for a share buyback of up to 2.6 per cent of securities on issue to commence on February 23 for a period of 12 months — read more
MGR last $2.05
8.13am: Wall St closes down as rally fades
Wall Street stocks finished lower Wednesday as a morning rally faded amid nagging questions following two days of chaotic trading and wild price swings.
At the closing bell, the Dow Jones Industrial Average had slipped to 24,892.73, down 0.1 per cent, after being in positive territory most of the session.
But the broadbased S & P 500 fell 0.5 per cent to end the day at 2,681.56, while the tech-rich Nasdaq Composite Index tumbled 0.9 per cent to 7,052.94 — read more
AFP
8.09am: NAB lifts first-quarter earnings
National Australia Bank sealed $1.7 billion in first quarter cash earnings, up 3 per cent in the same period a year prior and 1 per cent lower than its proceeding fourth-quarter result.
Net interest margin over the period “declined”, but excluding impact from its Markets and Treasury arm the bank says the metric remained broadly stable notwithstanding the full impact of the Federal Government’s bank levy and competitive pressures in home lending.
NAB’s CET1 capital ratio was at 10.2 per cent as of December 31 last year, the bank expecting to meet APRA’s “unquestionably strong” 10.5 per cent target by January 2020 — read more
NAB last $28.24
7.58am: AMP swings back to profit
AMP booked $848 million in net profit over fiscal 2017 after posting a $344 million loss the financial year prior, the result led by strong earnings momentum in its AMP Bank and Capital arms.
The company announced a 14.5c per share dividend franked at 90 per cent, contributing to a 29pc final dividend for the period.
“We’ve met our targets on reducing costs, driving new revenue from our Advice and SMSF businesses and managing margin compression in wealth management,” said AMP chief executive Craig Meller.
“We’ve stabilised and reinsured our life insurance business and we’ve stepped up our international growth, particularly in AMP Capital” — read more
AMP last $5.03
7.15am: Aussie dollar stumbles
The Australian dollar has fallen almost half a US cent against its US counterpart as equity markets continue to bounce back from a sell-off bloodbath that wiped $US4 trillion off the value of shares.
At 6.35am (AEDT), the Australian dollar was worth US78.29 cents, down from US78.77 cents yesterday.
With easing volatility on Wall Street, the US dollar has stayed strong, rising against most major currencies amid the gains in equities.
Westpac’s Imre Speizer says the US dollar has had one of its better days of recent months.
“The USD outperformed all the majors, the US dollar index up 0.9 per cent on the day,” he said in a morning note.
“Commodity currencies were hit hard, (with the) AUD down from 0.7880 to 0.7817 — a one-month low.”
The key event risks for the currency today are Reserve Bank of Australia’s governor Philip Lowe’s speech at the A50 Australian Economic Forum dinner and National Australia Bank’s fourth-quarter business survey.
Mr Speizer said he could not see the local currency gaining much ground today. “(It) retains downward momentum, with minor support at 0.7810 vulnerable given commodity weakness and USD strength overnight”.
The Aussie dollar is also lower against the yen but higher against the euro.
AAP
7.10am: Oil prices tumble
Oil sold off sharply after data showed US production blasted above 10 million barrels a day last week.
Oil prices have moved in alignment with other financial markets as they sold off in recent days. But even as stock markets have started to recover, US crude futures are falling toward their lowest levels since the beginning of the year.
The impetus was data from the US Energy Information Administration showing that US production surged to 10.251 million barrels a day last week — a jump of 332,000 barrels a day from the previous week and a new weekly record.
“The report just shattered that connection” between oil and equities, said Bob Yawger, director of the futures division at Mizuho Securities USA. “Crude oil is on its own now, plodding its own path to the downside.”
US crude futures fell $1.39, or 2.19 per cent, to $US62 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, fell $US1.01, or 1.51 pe recent, to $65.85 a barrel on ICE Futures Europe — the lowest since late December.
Dow Jones
7.00am: Trump breaks silence
President Donald Trump has finally commented on this week’s dramatic market falls, after months of taking credit for the rise of Wall Street.
The response, predictably, came in a tweet. And he doesn’t appear to be willing to take any responsibility for the downturn.
Here it is:
In the “old days,†when good news was reported, the Stock Market would go up. Today, when good news is reported, the Stock Market goes down. Big mistake, and we have so much good (great) news about the economy!
— Donald J. Trump (@realDonaldTrump) February 7, 2018
6.40am: Wall St volatility continues
US stocks continued to swing overnight, extending one of their most volatile weeks in years as investors wonder how higher interest rates might affect the nearly nine-year old bull market.
A recent rise in bond yields has stoked fears that a pick-up in inflation globally could lead central banks to tighten monetary policy more quickly than expected, making stocks less attractive as interest rates rise.
Those concerns contributed to the first round of stock selling Friday that preceded the Dow industrials’ biggest one-session point decline on record on Tuesday (AEDT) and an uneven session with 29 changes of direction yesterday.
Some investors said the sell-off was overdue and created a buying opportunity given favourable earnings growth that they think should help stocks continue marching higher. Still, some warn that technical selling drove the recent pullback rather than investors panicking, suggesting more dips could lie ahead.
“We’re just now digesting what’s been a pretty violent reaction,” said Jamie Robertson, senior portfolio manager of global asset allocation at Manulife Asset Management, which reduced stock positions recently but is now discussing increasing them. “This is the type of market action you get once you’ve had a bit of a dust storm.”
In US afternoon trade the Dow Jones Industrial Average had gained 89 points, or 0.4 per cent, to 25,002, after earlier rising as much as 381 points. The S & P 500 added 0.1 per cent, and the Nasdaq Composite fell 0.5 per cent.
Australian stocks are set for a positive start. At 6.45am (AEDT) the SPI futures index was up 20 points.
The yield on the benchmark 10-year US Treasury note rose to 2.832 per cent, according to Tradeweb, from 2.766 per cent yesterday. Yields rise as bond prices fall and were back near their four-year high hit last Friday.
Some traders have said investors are adjusting to a new market backdrop following a historically calm period in the stock market and one of the best-ever starts to a year for global indexes. They added that returns might not reach the lofty levels of recent years but are still positive early in February.
The Dow industrials are still up about 1 per cent on the year, though down more than 5 per cent from its January 26 record.
The Stoxx Europe 600 rose 2 per cent after Asian stocks were mixed and swung between gains and losses.
The Cboe Volatility Index, or VIX, known as the “fear gauge” for the US stock market, fell after briefly Tuesday hitting its highest intraday level since 2009.
Some analysts warn that many investors haven’t yet been shaken by the recent declines, and moves in traditional safe-haven assets such as gold have been muted. Some think that could mean more turbulence lies ahead and are closely watching to see how stock moves ripple through markets.
Some analysts have said the unwinding of extreme bets against stockmarket volatility has made market swings more pronounced in recent sessions after months of quiet trading.
“Algorithmic trading and volatility positions are the reason why the move has been so sharp,” said Salman Ahmed, chief investment strategist at Lombard Odier Investment Managers. “We have this technical blow-up, which I still think is in play at the moment.”
Research by Bespoke Investment Group published late Tuesday showed that the sell-off in the S & P 500 has been across many stock categories, rather than concentrated in stocks that underperform when the economy worsens or those that are trading at more expensive levels compared with their earnings. Investors said this supports the claim that the rout was caused by volatility products and not any change in market views.
Japan’s Nikkei Stock Average, which slumped 4.7 per cent on Tuesday to fall into correction territory, posted an early 3.4 per cent rebound yesterday but closed up just 0.2 per cent. Hong Kong’s Hang Seng index was down 0.9 per cent after rising as much as 2.9 per cent earlier.
The Shanghai Composite Index lost 1.8 per cent, although part of that was due to “concerns about the lack of liquidity” in China, said Daniel So, a strategist at CMB International.
Dow Jones Newswires
6.30am: Markets rebound
European and US stock markets mounted a nervous recovery with investors still reeling from dizzying price swings since the start of the week, but the likelihood of more volatility kept investors on the edge of their seats.
Key European stock markets managed to claw back around two-thirds of the previous day’s losses by the close, and Wall Street turned a weak start around to post credible gains approaching midday in New York.
“Equities are in recovery mode today after enduring a turbulent week,” said David Madden, market analyst at CMC Markets. “It has been a brutal week for investors, but some are keen to step in and take advantage of the fall in prices.” But Madden also detected a market feeling that “we could be in for another leg lower, and for that reason some dealers are reluctant to get back into the market”.
London closed up 1.9 per cent, Frankfurt ended 1.6 per cent higher and Paris closed up 1.8 per cent.
AFP
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