The local share market is set to open flat as investors wait for CPI figures to be released on Wednesday.
Internationally, oil has fallen overnight as Iraq, OPEC's second-biggest producer, threatened to derail the group's plan to cap production.
Bullish moves in European and Chinese markets
1. Bulls: We face a sizeable amount of event risk this week, but it seems the bulls seem to be getting the upper hand in a number of equity indices. China is well worth putting back on the radar, with the CSI 300 and A50 cash indices eyeing a break of the 15 August highs and the market trending progressively higher. The Hang Seng has been in a range of 24,000 to 23,000 since September and could test the top of that range soon with earnings season firmly underway there.
2. Europe: We can focus on Europe where the German Dax has broken the August downtrend and is threatening a close above the August highs itself, while the Spanish IBEX is now at the highest levels since April. Both these markets are getting a tailwind from the weakening EUR, although Spain has seen some unease about its political situation clearing. Had you told traders the market would one day demand the same risk premium to hold Spanish debt as they did UK gilts, in the halcyon days of the European debt crisis, most people would think you were nuts! Still, to push these markets higher from here we may need to see a further fall in EUR/USD, although I wouldn't be surprised to see a bit of a retracement in the currency pair, however with the trend lower in place rallies should be sold.
3. Wall Street: The S&P 500 is creeping higher (closed up +0.5%), but still needs a break of 2180 before I turn bullish on this market. Good buying has been seen in the technology and staples sectors and tech will now play a big role in price action, with Amazon, Apple and Alphabet out this week. Caterpillar report in US trade tonight with the market looking for Q3 adjusted earnings of 76c, on revenue of $9.88b. They should provide a 2017 outlook, with the street looking for $39.62b, but specifically the macro community will be eyeing views around the demand seen from emerging markets and China.
4. At home: In Australia, we should see some modest buying on open, specifically in the financial space with CBA's adr (American Depository Receipt) looking quite firm. BHP should open on a modestly weaker footing given US crude is a touch lower on the session, although for the seventh time since 5 October found buyers easy to come by on a test of $50 – $50 seems to be the line in the sand. As we saw yesterday, with Aussie financials rallying 0.8% off the opening low and subsequently dragging the broader index with it, there seems little concern about buying banks ahead of 2H 2016 earnings. The earnings release start on Thursday with NAB, with the financials having gained 2.3% thus far in October, just lagging behind the staples sector.
5. Iron: It's worth highlighting that iron ore futures exploded to the upside with a 4.8% gain (the biggest percentage gain since 8 March 2016). Steel (rebar) futures are driving the show with a 2.5% gain. With this in mind it's interesting to see the correlation between iron ore futures and the trade-weighted AUD moving so tightly correlated. The correlation specifically with AUD/USD is not huge, but the pair is likely finding some support from the firmer terms of trade and lower implied market volatility (the US volatility index is now below 13). However, price action shows a divided market with the intra-day ranges contradicting and traders wanting to see the details of tomorrows Q3 CPI and Fridays Q3 US GDP before committing themselves. AUD/USD traded in a range of $0.7591 to $0.7641.
6. Market highlights:
- SPI futures up 3 points or 0.1% to 5395
- AUD -0.1% to 75.97 US cents
- On Wall St, Dow +0.4%, S&P 500 +0.5%, Nasdaq +1%
- In New York, Rio +0.8%, BHP flat
- In Europe, Stoxx 50 +0.5%, FTSE -0.5%, CAC +0.4%, DAX +0.5%
- Spot gold -0.3% to $US1263.25 an ounce
- Brent crude -1.8% to $US50.85 a barrel
- Iron ore +1.0% to $US59.28 a tonne
- LME aluminium +0.3% to $US1630.50 a tonne
7. Local AGMs:
- Tabcorp
- Sirtex
- Bendigo and Adelaide Bank
- Bega Cheese
- WorleyParsons
- GUD
- Lovisa
8. International diary:
Bank of England governor Mark Carney is due to testify about the economic consequences of the Brexit vote before the Economic Affairs Committee in the House of Lords.
Data: German Ifo business climate survey; US Conference Board consumer confidence, FHFA house prices, S&P Corelogic/CS home prices, Richmond Fed manufacturing
What happened yesterday
The ASX slid lower on Monday, dragged by healthcare stocks and Coca-Cola Amatil, which fell 6.4 per cent.
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