To the scoreboard:
Dow: 20,941 -40 (-0.19%)
S&P 500: 2,384 -5 (-0.19%)
AUD/USD: 0.7482 -0.0007 -0.09%
ASX200 SPI futures (June contracts – 20 minute delay): 5,905 -8
Iron ore benchmark 62% fines: $US68.80 +$US2.38 (+3.5%)
1. US GDP misses the mark: Australian markets are pointing to a softer open after Q1 GDP in the US rose by 0.7% (forecast 1.0%). There was minimal market reaction from markets as Q1 GDP figures are typically weaker following holiday spending in the December quarter. You can find a useful recap of the GDP figures here. The fall in growth was largely driven by a drop in real personal consumption, as shown below:
2. UK and Europe data divergent: The UK also missed on first quarter inflation expectations, registering 0.3% growth. Other fundamentals in the UK still look sound though and like the US result, it probably isn’t as bad as it seems. The eurozone registered 1.2% core inflation against 1.0% forecast, buffeted by the timing of Easter which fell in April this year (not March) and thus increased activity in tourism and transport. The Euro rose above $US1.09 on the news, but the pound also remains steady above $US1.29.
3. Pressure remains on Aussie dollar: The AUD is back under US75c this morning, after the US dollar weakened following the GDP figures. Yesterday’s PMI data from China showed that manufacturing slowed slightly in April, which isn’t likely to have helped sentiment. At least there’ll be no immediate pressure from further falls in iron ore, with benchmark 62% fines rising 3.5% to $68.80 per tonne on Friday:
4. Oil market still expected to rebalance: Benchmark crude finished down last week below $US52, as excess supply from US shale producers continues to weigh on prices. A Reuters poll of 35 economists and analysts showed that Brent crude would average $US57 a barrel in 2017, once rebalancing took effect from an extension to the OPEC supply cuts. Ahead of a May OPEC meeting to discuss the cuts, Iran said over the weekend that co-operation for extending the cuts was looking more likely.
5. Data today: The Ai Group Performance Manufacturing Index comes out at 9:30am AEST. CoreLogic’s April house price data is released at 10am, and the Melbourne Institute’s inflation gauge is released at 11am. The Reserve Bank’s interest rate policy decision drops tomorrow, andt markets have priced in no changes to the benchmark rate of 1.5% in 2017. The other key data point for the week will be the minutes from the US Federal Reserve’s latest meeting, which are closely scrutinised for any clues as to the Fed’s thinking.
6. Citi’s index takes a hit: Friday’s GDP result in the US pushed Citi’s widely-read economic surprise back into negative territory for the first time since Donald Trump’s election victory. The CBOE volatility index (VIX), a measure of volatility in the US, also rose by 4% but at a reading of 10.82, it’s been at a historically low level since the French election result. This chart from Greg McKenna at AxiTrader shows the cycle in Citi’s index as sentiment fluctuates:
Have a great day.