Good morning. Here’s what’s happening as Wednesday begins.
First, the scoreboard: (8:10am AEDT)
- Dow: 19827 -59 (-0.3%)
- S&P 500: 2268 -7 (-0.3%)
- SPI 200 Futures (March): 5,643 -49 (-0.9%)
- AUDUSD: 0.7566 +0.0088 (+1.2%)
And the news:
1. Trump turns attention to the dollar, says it’s “too strong”: The greenback tumbled after US President elect Donald Trump, in an interview with the Wall Street Journal, said the border-adjustment plan, which would tax imports and exempt exports, is “too complicated” and the dollar was “too strong” to allow US companies to be competitive. That comes as survey by Bank of America found that 29% of money managers thought an international trade war was the biggest tail risk in January, while 24% cited a “US policy error” as the most worrying scenario.
2. China trade war warning: Xi Jinping, the first Chinese president to attend the World Economic Forum in Davos, said in an address: “No one will emerge as a winner in a trade war.” His message was squarely aimed at one person: Trump, who on the campaign trail excoriated China’s trade policies and threatened to slap a heavy tariff as high as 45% on Chinese imports.
3. Hard Brexit and Australia trade deal: When the British prime minister Theresa May confirmed the country would seek a Hard Brexit and leave the EU single market, she also set out a vision for a “new global Britain” –- a “trading nation” that will look beyond Europe to “new friends and old allies,” and flagged a trade deal with Australia. Her plans for Brexit bolstered the pound, which is headed for its biggest gain against the dollar since the global financial crisis.
4. Aussie surges: The Australian dollar took flight overnight, surging higher on the back of broad based US dollar weakness. At .7566, the AUD/USD currently sits at the highest level since November 16 last year.
5. Data today: China releases house prices at 12.30pm AEDT. Europe releases inflation data tonight, and there’s labour market data out from the UK. Later, consumer prices and industrial production figures for December are out in the US. Bank of Canada will hold its first monetary policy meeting of 2017 — no change is expected — while UK unemployment data for November will also be released.
6. Fed Speak: There are two speeches by US central bankers including one from Federal Reserve Chairman Janet Yellen. She speaks on “The Goals of Monetary Policy and How We Pursue Them,” which will be followed by an audience Q&A. Minneapolis Federal Reserve Bank President Neel Kashkari speaks on Economic Opportunity & Inclusive Growth.
7. Einhorn’s Trump Presidency playbook: David Einhorn, the hedge fund legend and founder of Greenlight Capital says a Trump presidency may not be the best news for Wall Street. In an investor letter, he says while economic stimulus will add fuel to an accelerating economy and a tightening job market, wage inflation could ultimately become a drag on corporate profitability and higher inflation. That may force the Fed to raise rates substantially, potentially causing the next recession.
8. Goldman optimism: Goldman Sachs economists are relatively optimistic about global growth in 2017. They cite two reasons. First, growth had already picked up in late 2016, especially in the advanced economies. Second, they expect ﬁnancial conditions to provide a boost to global growth in 2017 .The economists expect monetary policy to diverge more sharply than priced. They expect three Fed funds rate hikes this year, continued ECB asset purchases and an unchanged 0% target for 10-year JGBs by the Bank of Japan.
9. RBA rate cuts possible, Credit Suisse says: Tight financial conditions are likely to cause the Australian economy to stagnate in 2017, despite strong population growth, Credit Suisse says. “In the circumstances, we do not see why the RBA cannot be cutting rates while the Fed is hiking.”
10. Iron ore stumbles tumbled lower only a day after hitting the highest level since October 2014. According to Metal Bulletin, the spot price for benchmark 62% fines slumped by 2.5% to $81.55 a tonne, partially reversing the 3.9% gain seen on Monday. It was the largest percentage decline since January 6, and was the fifth session in the past seven where a daily movement of more than 1.2% was recorded. Macquarie Group’s research analysts said they believe that rising supply pressures will eventually force iron ore prices back into a $50 to $60 per tonne range. For now though market sentiment in China remains bullish on supply side reforms and demand optimism for the coming new year.
Have a great day. You can follow us through the day on Twitter: @BIAusMarkets.