Good morning. Here’s what traders will be talking about to start the week.
To the scoreboard:
Dow: 20,663 -65 (-0.313%)
S&P 500: 2,363 -57 (-0.23%)
ASX SPI200 Futures – June (20 minute delay): 5,855 +7
AUD/USD: 0.7630 +0.0002 +0.03%
Iron ore benchmark 62% fines: $US80.39 -$US1.21 (-1.7%)
1. Data today: It’s the start of a new quarter which means a busy week of data ahead. Today the ABS has February building approvals (market forecast: -1.5%) and February retail trade data (forecast 0.4%). There’s also the AIG PMI, ANZ job ads, the Melbourne Institute’s monthly inflation gauge, and the CoreLogic home value index. Tomorrow all eyes will be on the Reserve Bank of Australia (RBA) as minutes from the March meeting are released. Internationally today there’ll be a deluge of PMI data, led by Japan and South Korea in Asia. Later in Europe, PMIs for Germany, France, the UK and the Eurozone will be released and the US and Canada March PMI figures will follow.
2. First quarter wrap: ASX futures are pointing up as US stocks drifted to a weaker close on Friday, off the back of flat consumer spending data. The Dow still posted a 5.7% gain for the first quarter. European stocks were mixed. US bond yields and the USD were little changed on Friday. Yields on US 10-year notes dropped slightly, with influential Federal Reserve member William Dudley (New York) more dovish in his 2017 rates outlook. The futures market is forecasting two more rate hikes in 2017 as the most likely scenario. The AUD rose slightly against the greenback, but is expected to face downward pressure this week due to a drop in iron ore and the expectation that the RBA will be in no rush to raise interest rates.
3. Global oil chess match continues: The two major oil indexes (benchmark crude and West Texas Intermediate) were both higher on Friday after multiple OPEC member states agreed to a prospective extension of supply cuts. Iraq joined the list over the weekend, ensuring OPEC that it would comply with any future cuts. The oil price was still down by 6% for the first quarter of 2017. The agreements come as export production resumed in Libya after armed militants blocked supply from a major oilfield last week. Reuters reports that Goldman Sachs thinks the oil market is in the process of re-balancing, despite the recent increase in US crude inventories. Goldman said that an extension of OPEC supply cuts would be self-defeating if the resulting price increase led to more drilling.
4. Iron ore continues to sink: Further weakness in the iron ore market could weigh on the big Aussie miners and the AUD today, as benchmark 62% fines lost a further 1.7% to close at $80.39 a tonne. The run lower capped a fall of almost 12% in March as speculation contributed to price volatility and iron ore followed steel rebar futures lower. Buyers also suspended activity leading into the Chinese Tomb-Sweeping Festival. The market will be closed on Monday and Tuesday this week due to the holiday.
5. Bond market a “sleeping giant”: This article highlights that spring in the US may bring with it increased movements in the bond market. Analysts from Societe General note that the yields on US 10-year treasuries have traded within a narrow range between around 2.3% and 2.6% following Donald Trump’s election victory. While the market looks for any clue it can find about the Fed’s rates outlook. SocGen thinks that 10-year yields could rise to over 3% this quarter if the Trump administration can show the ability to push through its major economic reforms of more protectionist trade, tax cuts and infrastructure spending.
6. Positive post-Brexit data a “False Dawn”: Despite some robust economic data, British consumers are feeling the effects of a weaker currency since the Brexit vote. Although wage growth in Britain remains weak, the pound has dropped from over $US1.40 to close at just above $US1.25 on Friday. The weaker currency has led to increased inflation. Consequently, UK consumers dug further into their savings to buy up goods in the first quarter of 2017, on the expectation that the currency may weaken further. British consumers have also reduced their level of unsecured debt. Analysts from UBS note that the country is heavily reliant on foreign investment, and that even a slight decrease in foreign investment would put heavy downward pressure on the pound.