Good morning. Here’s what’s happening as Tuesday begins and RBA gears up for its first 2017 rates meeting.
First, the scoreboard (7:45am AEDT):
• Dow: 20045 -26 (-0.1%)
• S&P 500: 2292 -5.6 (-0.2%)
• SPI 200 Futures (March): 5,556 -34 (-0.6%)
• AUD/USD: 0.7661 -0.0019 (-0.25%)
And the news.
1. Data today: Australia’s interest rate decision is the big one and 24 out of 25 economists expect the central bank to stay pat. Still, traders will be focusing on the Reserve Bank of Australia’s views on housing, labour market and inflation to bet on the policy path ahead. China releases data on foreign exchange reserves and Japan posts December leading economic index. UK posts house price index. US has international trade and consumer credit data.
2. Australian rates unlikely to return to precrisis level: Even if rates increase in the next 12 months, as some are starting to forecast, it’s unlikely to herald the return of sharp, and steep, monetary policy tightening cycle from the RBA, according to Commonwealth Bank of Australia. Australia’s “neutral” cash rate — the level where interest rates have a neutral impact on the economy — is now significantly lower than where it sat in the past, the bank says.
3. Risk off in markets: Treasuries rose and gold surged to its highest level since November just as US and European shares fell. Investor caution came to the fore as slowing wage growth and uneven retail results raised questions about the strength of the American economy. The euro dropped amid signs of political uncertainty in France. Gold surged to the highest since November, while 10-year Treasury yields touched a two-week low. Australian shares are set to track global equities lower.
4. Company news: Macquarie Group has it operational briefing and Transurban Group reports half yearly earnings. General Motors, Walt Disney and Yum China Holdings are among those releasing earnings in the US.
5. Aussie under pressure: The Australian dollar remained under pressure in overnight trade, undermined by a wave of investor caution that swept across financial markets. David de Garis, director of economics at the National Australia Bank, put deterioration in investor sentiment down to renewed political concerns, particularly in Europe and the US.
6. Iron ore continues fall: Iron ore spot markets continued to slide on Monday, undermined by thin trading volumes and another plunge in Chinese futures. The spot price for 62% fines skidded 1.93% to $US80.60 a tonne, extending its decline over the past two sessions to 3.3%. Metal Bulletin said that the losses coincided with weakness in rebar prices due to thin trading conditions following the Lunar New Year holiday, along with another slide in Chinese futures. Others put the decline down to burgeoning inventories of both steel and iron ore.
7. Port Hedland ore exports slide: Iron ore export volumes from Port Hedland fell in January, according to data released by the Pilbara Ports Authority (PPA) on Monday. The PPA said exports declined to 40.297 million tonnes, down 8.3% on the levels of December. It was the smallest monthly total since July 2016, and was partially driven by a suspension in port operations for close to a day due to the effects of a tropical low.
8. ECB hits back at Trump: European Central Bank President Mario Draghi has joined the fray regarding whether or not the euro is manipulated. Testifying before the European Parliament’s Economic and Monetary Affairs Committee in Brussels on Monday, Draghi said, “We are not currency manipulators.” Draghi’s comments follow a war of words that developed last week after Trump adviser Peter Navarro took aim at Germany for using a “grossly undervalued” euro to its advantage against other nations in the European Union and against the United States.
9. Mexican peso the cheapest currency: The Mexican peso is now one of the cheapest currencies in the world, according to Kamakshya Trivedi, a strategist on Goldman Sach’s Global Investment Research team. President Donald Trump gets most of the credit: Trump has repeatedly attacked Mexico for taking advantage of trade deals with the United States. He said the country was taking jobs from US workers as companies shifted their production south of the border.
10. Markets don’t believe Fed speak: Federal Reserve officials, including central bank chair Janet Yellen, have kicked off the year by again indicating their intention to raise interest rates several times in 2017, even though the same suggestion last year turned into barely a single rate increase at the very end of the year. But there are signs that financial markets don’t believe the central bank this time. For one thing, traders aren’t pricing in the next interest rate increase until June. The way things are moving in Washington these days, who knows what the economy will look like by then.