Good morning. Here’s what’s happening as Thursday begins and the former CIA director and retired Gen. David Petraeus warns the world order could collapse.
First, the scoreboard (7:50am AEDT):
• Dow: 19,885 +21 (+0.1%)
• S&P 500: 2279 +0.2 (+0.01%)
• SPI 200 Futures (March): 5,609 +35 (+0.6%)
• AUD/USD: 0.7583 -0.0003 (-0.04%)
And the news:
1. Fed holds: The Federal Open Market Committee kept policy on hold on Wednesday. Most Fed watchers expected the committee to keep rates on hold, arguing it would be keen to see more details from the Trump administration’s proposed fiscal policies before making a move. Additionally, in the accompanying press release, the committee pointed the improving business and consumer sentiment in the aftermath of the US presidential election.
2. Some Fed officials in a hurry: Several Federal Reserve officials have recently floated the idea that the central bank will begin to shrink its $4.4 trillion balance sheet, perhaps as early as this year, in an effort to tighten monetary policy and start to reverse some crisis-era decisions. Here’s why it’s a bad idea.
3. US dollar slips: The greenback surrendered gains, which was sparked by economic data that added to optimism growth is accelerating. The ISM manufacturing PMI gauge rose to a more than two-year high of 56.0 while the ADP national employment report revealed an increase in private sector payrolls of 246,000 in January, well ahead of the 165,000 gain expected. Still the fed’s hold did little to change investor views on the path ahead for US interest rates that asset classes including stocks to Treasuries were little changed. Australian stocks are expected to drift higher at open.
4. Data today: Australia has balance of trade, with a strong a number expected thanks to rising commodity prices. Business and consumer sentiment data will be released for China. Japan has consumer confidence and investment in foreign bonds and stocks. US has jobless claims and productivity data.
5. Company news: Downer EDI and Tabcorp release earnings. Telstra’s earnings forecast was cut by Citi. Visa and Philip Morris are among US companies posting results.
6. Australian dollar: The Australian dollar is trading fractionally higher this morning, recovering after hitting a low of .7552 in overnight trade. Having recovered in European trade, the Aussie came under renewed selling pressure in North American trade following the release of strong US economic data earlier in the session.
7. Commodity boost: Australia’s key commodity prices continued to rip higher in January, according to the RBA’s Commodity Price Index released late Wednesday afternoon. Based on preliminary estimates, the RBA said prices jumped by 5.5% in SDR terms, following an even larger 8.8% gain in December. That left the index up 55.7% from a year earlier, thanks largely to ballooning iron ore and coking coal prices, Australia’s largest commodity exports by dollar value.
8. Dalio’s investment warnings: Ray Dalio, the head of Bridgewater Associates, is cooling off on his opinion of President Donald Trump. Dalio, who was hopeful about a Trump presidency and some of his economic policies seems to have struck a less hopeful tone, according to a letter obtained by Bloomberg. Dalio warned that there is a high level of uncertainty in the market and told clients to avoid investing too heavily in a particular asset. Separately Elliott Management, the giant New York hedge fund run by Paul Singer, is prepping for a wide swath of market moves as Donald Trump’s presidency takes shape.
9. Investment banks bonus: Populist movements such as Brexit and the rise of Trump will help strip away a major hindrance for global investment banks — rules. Trump’s plans to eliminate banking reforms put in place after the 2008 financial crisis could save US banks more than $27 billion, according to research house Opimas. Investment banking revenue growth could exceed 7% by 2018, Opimas said, as a wave of deregulation sweeps the world.
10. Russia is getting closer to pulling out of its recession: A preliminary estimate showed that Russia’s GDP dipped by 0.2% in 2016, according to the Federal Statistics Service. This was above expectations of a contraction of 0.5%, according to the Bloomberg consensus. Russia’s economy has been slowly climbing back after a sluggish 2015 and 2016 amid lower oil prices and economic sanctions.