US CPI data and FOMC Minutes will be the releases for US markets, and will, for the bulls, ideally confirm without qualification the Fed’s need to stay-put on interest rates. But Brexit-drama will also be closely monitored, as we creep ever-closer to the April 12 Brexit-deadline; as will the IMF’s economic updates due mid-week, and the ECB’s Monetary Policy meeting, for insights into the global growth outlook.
3. Currency traders positioning for event-risk: In contrast to stock-indices, shuffling in currency markets was more pronounced on the litany of macro-headline risk. The central thread to the moves was a fall in the US Dollar, though much of this move came as an extension of positioning in the Euro ahead of Wednesday’s ECB meeting, just as much as it was a positioning for CPI data and FOMC minutes.
Growth appetite is generally higher, it must be said though, with commodity currencies, such as the AUD, NZD, CAD, and NOK rising – the latter two owing to a spike in oil prices – and safe havens like the Japanese Yen and Swiss Franc falling.
4. US earnings to determine Wall Street’s fate: Looking slightly higher above the fray, and US earnings season is coming-up, and may centre market-participants’ minds a touch. Not that any tremendous surprises are forecast; though earnings growth is expected to have softened a little this past quarter. That much won’t derail markets, and estimates are that a healthier growth in US corporate earnings should return as 2019 unfolds.
Only the severest miss in earnings growth would curtail the recent bull-run across the S&P500. And not to mention that, with the US Fed keeping yields and discount rates low, the price-to-earnings ratio across the index remains relatively attractive, while dividend yields are also becoming of greater appeal, too.
5. ASX facing domestic headwinds: A similar dynamic could conceivably prevail across the ASX200 in time, though some headwinds might keep momentum subdued. The ASX is showing a high correlation with iron ore prices at-the-moment, as the materials sector underpins the market’s gains. Though welcomed, the rally in iron ore is on shaky ground, given its being driven by supply disruptions rather than global economic growth.
There are other areas of upside in the index it must be said: namely in biotech, which has benefitted from the recent turnaround in risk-appetite. However, not to be forgotten, the uncertainty in Australia’s property keeps weighing on the financials sector; as is the global slipping in long-term bond yields, which is keeping upside financial stocks globally limited.
6. ASX in the day ahead: Nevertheless, looking just to the day ahead, and SPI Futures are indicating that the ASX200 will open around 8 points higher this morning. A clear indication of where the market might go today is missing currently.
It comes on the back of a day which witnessed a very broad-based rally for Australian stocks. Lo-and-behold, it was another big rally in iron prices, and a slight lift in industrial metals generally, that underpinned a run-higher in mining stocks, and the overall ASX200. But breadth, too, was strong overall: 72 per cent of stocks were higher on the day, with the communications and financials sectors the only laggards for the session.
7. Oil price rally accelerating: One theme to follow today will be the renewed rally in oil prices to begin the week. Supply-side risks have led the price higher once again; this time, courtesy of internal political instability in Libya. Actual supply disruption is yet to be confirmed, making the spike in prices sensitive to rapid retracement.
According to the daily RSI, while upside momentum remains strong, the market is flashing signs of being overbought. However, given the current geopolitical dynamics, ahead of key OPEC meetings this week, future production cuts from major oil producing countries is still being priced-in. The WTI futures curve went into backwardation overnight, reflecting the pricing-in of perceived oil undersupply in the medium term.
8. Market watch:
SPI futures up 9 points or 0.1% at 7am AEST
- AUD +0.3% to 71.26 US cents
- On Wall St: Dow -0.3% S&P 500 +0.1% Nasdaq +0.2%
- In New York, BHP +1.4% Rio +2.1% Atlassian +0.7% Boeing -4.4%
- In Europe: Stoxx 50 -0.3% FTSE +0.1% CAC -0.1% DAX -0.4%
- Spot gold +0.5% to $US1297.97 an ounce at 12.50pm New York
- Brent crude +1% to $US71.02 a barrel
- US oil +1.7% to $US64.16 a barrel
- Iron ore +2.6% to $US95.30 a tonne
- Dalian iron ore +1.7% to 657 yuan
- LME aluminium -1% to $US1871 a tonne
- LME copper +1.2% to $US6475 a tonne
- 2-year yield: US 2.36% Australia 1.47%
- 5-year yield: US 2.33% Australia 1.49%
- 10-year yield: US 2.52% Australia 1.87% Germany 0.00%
- US-Australia 10-year yield gap near 6.45am AEST: 65 basis points
This column was produced in commercial partnership
between The Sydney Morning Herald, The Age and IG