Good morning. Here’s what’s happening as Tuesday begins and markets get underway in Australia and Asia.
First, the scoreboard (8:00am AEDT):
• Dow: 20837.44 +15.7 (+0.08%)
• S&P 500: 2368.65 +1.31 (+0.06%)
• SPI 200 Futures (March – delayed pricing): 5,701.5 +7 (+0.12%)
• AUD/USD: 0.7674 +0.0005 (+0.07%)
And the news.
1. Markets look to Trump : Australian shares could tread water at open as focus shifts to president Donald Trump’s first address to Congress on Tuesday evening in Washington. The Dow Jones Industrial Average nudged higher in late trade to climb for the 12th straight session, its longest winning run in 30 years. Treasury yields rose and the dollar climbed tracking rising odds for a US rate increase in March. Trump will began outlining his spending priorities. He flagged plans to spend “big” on infrastructure and seek a “historic” increase in the nation’s military budget. Still, uncertainty or the lack of specifics is casting doubts on investors minds who are wondering whether stocks have run ahead of themselves. Billionaire investor Warren Buffet doesn’t think so, and says stocks are cheap.
2. Data today: Net exports and government spending, which feeds into GDP calculations, new homes sales and private sector credit data are due to be released in Australia. New Zealand has trade balance and business confidence. Japan has retail sales, industrial production, housing starts and construction orders. US releases GDP, consumer confidence and wholesale inventories data.
3. Central bankers out there: Bank of Japan’s executive director Shigehiro Kuwabara speaks at a fintech forum in Tokyo. Kansas City Federal Reserve Bank president Esther George gives keynote speech about the US economy and monetary policy. San Francisco Federal Reserve Bank president John Williams gives outlook speech. St. Louis Federal Reserve Bank president James Bullard talks about US economy and monetary policy.
4. Company news: Harvey Norman and Spotless Group are among companies reporting earnings. Milk producer Bellamy’s holds it extraordinary general meeting. The meeting was called in December by activist shareholder Jan Cameron in order to sack four Bellamy’s directors – Patria Mann, Launa Inman, Michael Wadley and Charles Sitch. Target releases results in the US.
5. Iron ore up: Iron ore spot markets soared on Monday, mirroring an even larger surge in Chinese futures. But it was driven by temporary factors, creating some doubt at to whether the rebound will last. According to Metal Bulletin, the spot price for benchmark 62% fines jumped by 2% to $92.33 a tonne, partially reversing the three-day, 4.6% drop seen late last week.
6. Aussie dollar anchored: After a brief foray above the 77 cent level in Asia, and several looks at this level again overnight, the Australian dollar is almost unchanged from where it began the trading week this morning, continuing to oscillate in a thin trading range ahead of Donald Trump’s first appearance before the US Congress on Tuesday.
7. The pound’s Scottish woes: The pound dropped after reports that the Scottish government could be set to call for a second independence referendum just as prime minister Theresa May begins the formal process of leaving the EU by triggering Article 50. The report from The Times has reignited worries in the currency markets about a potential fracturing of the UK, and as a result, sterling has pulled lower to begin the week.
8. US manufacturing’s unexpected jump: The Dallas Fed manufacturing index unexpectedly jumped as enthusiasm surrounding Trump’s election appeared to carry over into the start of 2017.
9. Free trade not wonderful for everyone says Buffet: Billionaire investor Warren Buffet is touching on one of the most pressing issues in the US labour market: the American workers who have been displaced as the US chugs forward in the increasingly integrated global economy. And this comment sums up his thinking
“Free trade is wonderful for the world and the United States. But its benefits are diffused among 320 million people,” he said in an interview with CNBC’s Becky Quick on Monday. “You buy your bananas cheaper because we don’t try and produce them in the United States. But the penalties from free trade are terrible to specific industries.”
“And as an investor, I can own — make a dumb decision on owning a shoe company, but if I own a good insurance company, I can diversify away the problems. If you are a 55 year old steel worker, you can’t diversify away your talents,” he added.
He also said stocks are cheap based on where interest rates are.
10. Trump’s protectionism could tip the world back into recession: The new US administration’s rhetoric is only increasing the likelihood of beggar-thy-neighbour currency wars, or worse, an all-out trade war, with the US against the world, according to Erik Weisman, chief economist at MFS Investment Management. Given the slow-growing, highly indebted state of the global economy, it’s not inconceivable that trade battles could tip the world back into recession, or perhaps worse. Under such a scenario, risky assets would likely run into turbulence at a time when central banks have few weapons left in their arsenals.