Good morning. Here’s what’s happening as Tuesday begins and central banks from Japan to US get into a huddle to determine interest rates. Also, Goldman Sachs to Ford are opposing President Donald Trump’s travel ban.
First, the scoreboard (7:45am AEDT):
• Dow: 19,953 -141 (-0.7%)
• S&P 500: 2279 -16 (-0.7%)
• SPI 200 Futures (March): 5,594 -40 (-0.7%)
• AUD/USD: 0.7550 +0.00003 (+0.04%)
1. Stocks sell off: US equities slumped the most since Donald Trump’s election win in November, while Treasuries and gold advanced on concerns US immigration changes may be the first of the isolationist policies that can take the focus away from economic stimulus measures. The US dollar declined taking losses for January to more than 2%. Australian stocks are set to open weaker.
2. Data today: The big one for the day is Bank of Japan’s interest rate decision and there’s a smattering of other data from the nation including industrial production to household spending. U.S. Fed begins its meeting. Australia has private sector credit which includes residential investor loan demand and NAB business confidence.
3. Companies: Fortescue reports December quarter production as does Iluka. CYBG Plc, the spun off UK unit of National Australia Bank, has its first quarter trading update and annual general meeting in Melbourne. Exxon Mobil reports earnings in the US.
4. Aussie dollar, ugh: The local dollar went nowhere overnight as broad-based US dollar weakness was counteracted by a sharp deterioration in investor sentiment. While the Aussie did little against the US dollar, it rose against the euro and British pound but fell against the safe-haven Japanese yen, reflective of investor caution seen during the session.
5. China’s steel prowess: China nearly made nearly as much steel as the rest of the world combined last year, boosted by infrastructure investment from the Chinese government along with a rebound in residential construction activity following strong property price gains in China’s largest centres. In 2016, Chinese crude steel output rose by 1.2% to 808.4 million tonnes, accounting for a staggering 49.6% of total global output.
6. NAB’s RBA rate call is still down: Most analysts and traders, including economists from three of Australia’s big four banks, think the next interest rate move from the Reserve Bank of Australia will be higher, not lower. The National Australia Bank (NAB) thinks otherwise. It says the RBA will continue to cut rates in 2017, not once but twice, leaving the cash rate at just one percent. The reason for this call, it says, is not premised on what will happen in the year ahead, but rather what will happen in 2018. And while low inflation will play a part, it says that it’s other factors that will lead to the RBA to cut further.
7. US corporates hit back on travel ban: Companies including Goldman Sachs, Ford and Silicon Valley biggies said they don’t support Trump’s executive order banning people from seven majority Muslim countries.
8. Big hedge fund calls for overhaul of laws to prevent another financial crisis: Billionaire hedge fund manager and big Republican donor Paul Singer is calling for revamp of the Dodd-Frank act, the post-financial crisis regulation intended to prevent another meltdown. He proposed several solutions, including allowing bailouts, refining margin requirements for big investors and counterparties, replacing the Volcker Rule among other things.
9. Pending US home sales rise: Finally some good news out of the US. The latest report on pending home sales from the National Association of Realtors (NAR) came in ahead of expectations on Monday. The measure of single family homes, co-ops, and condos with contracts signed increased by 1.6% for the month of December, more than the 1.1% gain expected by economists. This was an improvement from the 2.5% drop in November.
10. Fiat’s challenge: Fiat Chrysler CEO Marchionne is determined to wipe out the company’s debt before he departs and leave the automaker with a clean balance sheet. But FCA also has a number of plants in Mexico and could get hit harder by a renegotiation of NAFTA or a border tax. That could be offset, as it would be for others automakers, by a corporate tax cut and business-friendly regulatory reform. But if you look at Ford and GM, each currently has the balance-sheet strength to handle a downturn.
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