Good morning. Here’s what traders will be talking about as markets open.
To the scoreboard:
Dow: 20,551 -46 (-0.22%)
S&P 500: 2,343 -1 (-0.05%)
ASX SPI200 Futures – June (20 minute delay): 5,752 +16
AUD/USD: 0.7621 -0.0001 (-0.01%)
Iron ore benchmark 62% fines: $US80.57 -$US4.49 (-4.1%)
1. Markets continue in a state of flux: US stocks posted their eighth straight day of losses (the longest streak since 2011) and the FTSE and Euro STOXX Index also lost ground, as the focus on how well the Trump administration can enact its policies continued to weigh on investor sentiment. The US market rose 12% after the election off the back of the so-called “Trump Trade” as investors backed the Trump administration’s ability to quickly enact pro-growth policies with a Republican-controlled Congress. With the failure of the health care bill due to factional infighting, the market is now in a state of flux as investors assess what impact political gridlock will have on the US economy. This series of charts show ways in which risk appetite has eased in March, with more short-selling and higher volatility.
2. Investors turn to safe havens: With risk appetite lower, the traditional safe haven assets of sovereign bonds and gold both rose. Yields on US 10-year treasuries dropped below 2.4%. Although Chicago Fed president Charles Evans said that the Fed could raise interest rates 3 or 4 times this year if the economy took off quickly, his comments didn’t have any effect on overnight trading. Gold rose by 0.5%, briefly rising above its 200-day moving average of $US1,260.44 before settling at $US1,254.00. After falling more than 11% in the weeks after the US election, the precious metal bottomed out in late December and has stabilised in 2017.
3. Iron ore gets smashed again: Benchmark 62% fines fell for the sixth time in seven sessions, this time by another 4.1% to almost fall below $80 per tonne. While it’s still up on the year, iron ore’s 2017 gains now stand at just over 3.5% after rising more than 20%. Lower grade 58% fines also fell significantly, losing 5.6% to $54.83 per tonne. The drop in iron ore was linked to weakness in steel prices and a crackdown on oversupply by steel mills in the province of Tangshan. Oil fell again as risk-off sentiment continues to weigh on markets, with West Texas Intermediate crude falling below $48. Although over-supply concerns have been well documented, the long-term outlook points to a rise in prices. Speculation will continue to influence markets in the short term, as investors have unwound net long oil positions by a third from a record high in late February.
4. US dollar on the downward slide: The US dollar index lost another 0.4% overnight and the currency continues to face headwinds in the wake last week’s failed healthcare repeal bill. Both the GBP and the Euro rose more than 0.5% against the greenback, climbing past $1.25 and $1.08 respectively. Lower yields on US treasuries also contributed to USD weakness as the currency lost further ground against the yen, dropping another 0.6% to under 111. Japanese stocks in turn got battered, losing 1.4% yesterday as a stronger currency negatively effects competitiveness for Japanese exporters. The AUD was largely unchanged overnight, trading in the US76 cent range although the crash in iron ore prices is expected to continue to weigh on the currency.
5. Is it Europe’s time to shine?: In the wake of political gridlock in Washington, green shoots are (finally) starting to appear in European markets. Over the past year, investors have been increasingly bullish on US assets as the Federal Reserve embarked on raising rates while the European Central Bank (ECB) continued its stimulatory measures. Recent evidence suggests that central bank policies are moving to a more convergent path, as Europe shows positive signs of growth. The ECB has made it clear that at least some policy change is coming, whether that’s reducing the QE bond buying program or possibly even raising benchmark rates. Statements by the ECB, combined with the fact that the US Fed won’t be raising rates as quickly as forecast, has impacted recent price action in markets (particularly the US dollar) and suggests that the trend in global capital flows is starting to shift.
6. Traders reap benefits from shorting US banks: After the US election result, shares in US banks took off and rose 26% as investors cheered proposed policies which would reduce tax and relax regulation in the sector. The banks reached their peak at the beginning of March, and short-sellers who aim to profit from a downturn in the sector have since made a pretty penny. According to S3, a financial analytics firm, short sellers in US bank stocks made a net gain of 6.35% last week by betting against the top 10 US bank stocks.