US retail sales help markets

Long awaited inflation may now be knocking at the door.

Source: Bloomberg

US retail sales staged a mighty comeback last night, lifting the broader markets with all major indices trading into the green and new highs. The Russel 2000 was more representative of the smaller company’s end of the US equities, continuing a staggering 8% rise over the past 6 days and eyeing a close at a record 1300 points.

On the back of this, the US dollar index still remains king and back over the all-important 100 level as the post-election Trump effect rolls on, with the December rate hike remaining an almost certainty.

So the reversion to the mean, with iron ore settling back 6.5% after a great run, may see some profit taking in Australian miners today, only offset with oil trading 5.5% higher overnight prior to the coming OPEC meeting. This should have a positive offsetting effect for the energy sector in the Aussie market.

There are some good technical levels in the oilers showing up, with Woodside holding above $28.00 last close $29.07 and Santos firmly above $3.80.

Watch the AUD today with Reserve Bank of Australia (RBA) Governor Dr Phillip Lowe stating that of the three things they worry about the most, a black swan event in China tops the list, but also stated it was unlikely. From the RBA comments that housing is “complicated” and the statement that interest rates may have seen the lows, the immediate roll-on effect was ten-year Aussie bonds moving to yield 2.65% while the AUD cross remains around 75.5c. This currency cross is worth watching as a move away from these levels will provide some great volatility opportunities for traders.

Current SPI futures are up 16 points again, pointing to a positive open in a normally negative month. Doing the opposite to what feels right continues to provide results for traders.

There is some uncertainty on open for Australia. IG’s ASX 200 call is 20 points higher or so, but BHP and CBA ADRs are down 1.9% and 1.4% respectively. So either the ADRs are wrong (I suspect CBA’s is) or our call has downside, as energy (with a 7% weight on the market) is not going to lift a market where miners and banks are down - that is if we use BHP and CBA as proxies of the space. BHP sources 40% or so of its EBITDA from oil, so I suspect that will support and the two stocks mentioned will not be down as suggested.

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