Morning! Here’s what traders will be talking about before markets open.
To the scoreboard:
Dow: 20,668 -238 (-1.14%)
S&P 500: 2,344 -30 (-1.26%)
ASX SPI200 Futures – June (20 minute delay): 5,710 -48 (-0.83%)
AUD/USD: 0.7689 -0.0041 (-0.53%)
Iron ore benchmark 62% fines: $US87.59 -$US3.90 (-4.26%)
1. Stocks down: After a period of sustained low volatility, US stocks finally took a hit as a late sell-off saw the market slide by more than 1% overnight. With concern mounting that the Trump administration will be unable to gain the necessary support to pass healthcare reforms this week, investors sold off stocks as they re-assessed the time frame for Trump’s proposed corporate tax cuts later this year. With key indicators showing that stock market valuations look stretched, investors turned skittish as the S&P 500 volatility index was up more than 7% and US stocks had their worst day since October last year. Yields on US 10-year bonds fell another 5 basis points to a three-week low of 2.425%.
2. US dollar routed: The US dollar index lost 0.7% and fell to under 100 for the first time since early February. USD/YEN fell below $US1.12 as skittish markets caused currency investors to pile into the safe haven yen trade. The pound jumped over 1% to almost $US1.25 after stronger than expected inflation data in the UK, with the yearly CPI index climbing 2.3% (2.1% forecast). The Euro climbed over $US1.08 as political stability concerns eased around the upcoming French election. After showing strength earlier in the week, investors went in risk-off mode overnight as the Aussie fell back below US76 cents and lost more than 1% against the pound, euro and yen.
3. Iron ore gets crushed: Spot prices for benchmark 62% fines for iron ore lost a whopping 4.26% overnight to $87.59 a tonne, while lower grade 58% also shedded ore than 2%. The decrease in iron ore was linked to a sharp drop in Chinese rebar futures for the price of steel. With increased speculative activity recently and no clear trend appearing, iron ore volatility is likely to remain high.
4. Hedge funds are unwinding on oil: US shale oil production continues to outweigh OPEC supply cuts, with the price of benchmark crude and West Texas Intermediate (WTI) hitting three months lows. Hedge funds are now unwinding bullish oil bets at a record pace as speculation mounts that the price for benchmark crude may fall below $US50 a barrel. Over the last week hedge funds reduced their net long positions by a record 153 million barrels across both benchmark and WTI contracts. With the remaining net long position still at 820 million barrels, analysts say that more unwinding of speculative bets could put further pressure on the oil price while the supply glut remains in the system.
5. Australia is out of the woods: Australia’s economic transition out of the mining boom has been “close to perfect”, according to a research note from Societe Generale. Klaus Baader, the head of the bank’s Asia economics team said that a steady reduction in interest rates has led to a weaker dollar and helped to stimulate non-mining investments, while the government’s stance on widening the deficit had also cushioned the impact from the end of the mining boom. Baader said that while risks remain with the housing market and a downturn in Chinese economic growth, “it really has been a textbook transition'”.
6. How High Frequency Trading (HFT) has changed the stock market: HFT is a market practice that uses complex algorithms to execute super-fast trades based on certain market conditions. The advent of HFT has not been without controversy on the grounds that it makes it easier for participants to manipulate the market, but it’s now firmly entrenched in daily market activity. This article based on a research note by Credit Suisse shows the growth in HFT since 2005, and outlines four key ways in which higher trading volumes have changed the way markets operate.