But the short-term vagaries of market psychology drove rational folk to buy into the market, chasing momentum, after the S&P500 hit its all-time highs. The giddiness is over now, and what is being witnessed is a sensible recalibrating of market participants’ positions, more aligned with current market fundamentals.
3. US inflation the key risk, ahead of NFPs: The pull-back in US stocks ought to be transient, provided inflation and inflation expectations don’t blow-out. The risk of this happening is quite low, although market measures of implied inflation have shifted higher in the past 24 hours. In light of this risk, the major event in the next 24 hours will be US Non-Farm Payrolls data, with key wages growth component of the data to be of most interest.
A big beat on this number could add further to bets of higher inflation, and less accommodative monetary policy from the Fed — and therefore threaten to exacerbate the current market sell-off.
4. US Dollar showing few signs of weakness: If we were to see an upside surprise in wages growth out of the NFP data, then it would likely only add to the might of King Dollar. The Greenback lifted across the board last night, courtesy of the rise in US Treasury yields.
With the US economy the only major, developed economy looking in anything resembling a healthy state just at present, it’s difficult to imagine anything but a continuation of the Dollar’s upward trend. By extension, of course, this does not bode well for the Aussie Dollar: once again the local unit flirted with life in the 0.6900 handle overnight.
5. The other macro-stories, ex-US: In the interest of balance, the US macro-story, while clearly the most significant, wasn’t the only thing driving market activity overnight. Numerous other (albeit lower impact) events transpired, and shifted market pricing around modestly.
European PMI figures were dropped, and they were generally better than expectations, leading to a relatively (and only relatively) good day for the DAX. While the Bank of England met, and kept interest rates on hold at 0.75 per cent as broadly expected, but cut its inflation expectations in the process for the UK economy.
6. The ASX to recover some of its losses: This morning, SPI Futures are suggesting a 7-point lift to the ASX200 at the open, belying the down-day across global equity markets. The weaker Australian Dollar might have something to with this, with few other clear, positive leads apparent for the market.
The jump at the open will do relatively little to erase yesterday’s tumble, which saw the ASX200 drop 0.59 per cent. It was a sell-off with quite a level of breadth and activity behind it, too: volumes were above average for the day, and market breadth was a meagre 33 per cent.
7. Bank shares giveth, and bank shares taketh: In a reversal of fortunes from the prior day’s trading, it was the financial stocks that drove the losses in the ASX200 yesterday. Stripping 22 points from the index, bank stocks took a spill after NAB missed profit expectations, reported a bigger than expected narrowing of its net interest margin, and slashes its dividend from $0.99 to $0.83 per share.
Backing on from ANZ’s results the day prior, NAB’s earnings cast doubt on the hope of a trend-reversal in Aussie bank shares, with Westpac’s results on Monday now the next major for bank-share, and ASX200 traders.
8. Market watch:
ASX futures up 7 points or 0.1% to 6328 at 7am AEST
- AUD -0.2% to 69.98 US cents (Overnight low 69.95)
- On Wall St at 4pm: Dow -0.5%, S&P 500 -0.2%, Nasdaq -0.2%
- In New York, BHP -0.4%, Rio -0.9%, Atlassian +0.4%
- In Europe: Stoxx 50 -0.7%, FTSE -0.5%, CAC -0.9%, DAX flat
- Spot gold -0.4% to $US1271.89 an ounce at 2.12pm New York time
- Brent crude -2.5% to $US70.36 a barrel
- US oil -3.3% to $US61.48 a barrel
- Iron ore flat at $US94.17 a tonne
- Dalian exchange closed
- LME aluminium +0.1% to $US1816 a tonne
- LME copper -1.1% to $US6167 a tonne
- 2-year yield: US 2.34%, Australia 1.31%
- 5-year yield: US 2.35%, Australia 1.38%
- 10-year yield: US 2.54%, Australia 1.78%, Germany 0.03%
- 10-year US/Australia yield gap: 76 basis points
This column was produced in commercial partnership
between The Sydney Morning Herald, The Age and IG