Good morning. Here’s what’s happening as Thursday begins.
First, the scoreboard: (7:55am AEDT)
• Dow: 1904 -24 (-0.1%)
• S&P 500: 2272 +4 (+0.2%)
• SPI 200 Futures (March): 5,634.5 -9 (-0.2%)
• AUDUSD: 0.7512 -0.0054 (-0.7%)
And the news:
1. US inflation boost: Treasuries fell and the US dollar rallied, reversing Tuesday’s trading on prospects of rising inflation against political uncertainty in the run-up to Donald Trump’s inauguration. U.S. stocks fluctuated amid corporate results from firms including Goldman Sachs. The US cost of living rose for the fifth straight month bolstering inflation arguments. The yen and gold retreated for the first time in eight days, while Oil slipped below $52 a barrel. The Canadian dollar and Mexican peso plunged as US Commerce Secretary nominee Wilbur Ross said at his confirmation hearing that the North American Free Trade Agreement with the two nations will be an early priority for his department. Australian stock futures point to a marginally weaker open.
2.Fed hikes coming: US Federal Reserve Board Chair Janet Yellen said the Fed is close to meeting its dual goals of full employment and price stability and she and most of her colleagues expect to raise interest rates “a few” times this year. She speaks again Thursday on the topic “The Economic Outlook and the Conduct of Monetary Policy”.
3. Wages rising: The Fed says workers across much of the United Sates are seeing modest wage gains, according to its Beige Book. The book is a compilation of anecdotes on the economies in the Fed’s 12 districts.
4. Data today: The big one in Australia is the employment report at 11.30am AEDT but before that we’ll get consumer inflation expectations. Also watch for data on foreign bond and stock ownership from Japan, and and its industry activity index. South Korea releases producer prices and US releases housing starts, jobless claims, Fed balance sheet and money supply.
5. Aussie dollar reverses: The Australian dollar dropped on Wednesday as robust US economic data, along with somewhat hawkish remarks from US Federal Reserve chair Janet Yellen, boosted the greenback after several days of losses. With the Aussie already under pressure, whether that trend will be maintained will likely come down to the release of Australian unemployment figures for December.
6. Iron ore price moves not so crazy: Iron ore spot markets stabilised on Wednesday following some wild price movements earlier in the week. The spot price for benchmark 62% fines rose by 0.6% to $82.05 a tonne, according to Metals Bulletin. That was a stark divergence from the moves seen in the previous two sessions when prices surged by 3.9% only to plunge 2.5% a day later. Year to date it has gained 4%, having added 81% in 2016.
7. Barclays lifts metals outlook: The net effect of potentially lower US taxes, increased infrastructure investment, and more protectionism boosts the outlook for copper, steel, and iron ore consumption, the bank says. A brightening outlook in the US, coupled with strong metals demand in China, has pushed it to raise its 2017 price forecasts for copper and iron ore
8: China credit risk: China credit risk is back in focus for the first time in eight months, Morgan Stanley says. Onshore bond market deleveraging is causing a rise in the cost of funding and further credit spreads. With the pricing in onshore and offshore bond markets moving separate ways, Morgan Stanley thinks overseas investors are complacent about China credit risk.
9. Populism scares Ray Dalio: Referring to increasing wealth inequality, the rise of nationalism, and a rebellious middle-class voting for Donald Trump and Brexit, Ray Dalio – founder of the massive Bridgewater Associates hedge fund – warned that Europe and the US face a dark future unless they turn back the rising tide of populism. Populism usually devolves into extremism, he said.
10. Challenging times for fund managers: A JPMorgan US Equity Strategy note released on Wednesday shows that only 32% of active quant funds and active long only funds outperformed their benchmarks in 2016, compared to 63% in 2015. On the whole, 68% of active funds underperformed relative to benchmark returns. This underperformance has led to a “record rotation” from active to passive investments in 2016, according to the note. Investors pulled $200 billion from active US equity funds in the single largest annual rotation out of active management.
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