Good morning and welcome back from the Easter break.
To the scoreboard:
Dow: 20,637 +184 (+0.90%)
S&P 500: 2,349 +20 (+0.86%)
ASX SPI200 Futures – June (20 minute delay): 5,852 -15
AUD/USD: 0.7590 -0.0001 -0.01%
Iron ore benchmark 62% fines: $US66.25 -$US1.79 (-2.6%)
1. Stellar day on US market: With European markets closed, US stocks rebounded overnight on strong earnings results, posting their biggest one-day gain since March 1. It follows a 0.7% drop on poor US retail sales and CPI data coming into the Easter break, which raised concerns that optimism following Donald Trump’s election is wearing off.
Earnings season will be the key driver of US stocks in the near-term, with strong ‘hard’ data in the form of earnings results needed to justify lofty valuations and positive consumer sentiment. The yield on US 10-year treasuries rose slightly to 2.25%, but the spread between 2-year and 10-year notes is at its lowest level since before the US election as the global risk outlook has driven capital back into bonds.
2. Growth in China stays on track: China reported GDP growth of 6.9% for the March quarter, in line with the previous quarter and just above consensus estimates. The figures suggests the economy is on track to achieve the Chinese central bank’s 2017 growth target of 6.5%. Infrastructure spending and real estate investment drove gains, and there were positive indicators for domestic consumption with strong growth in disposable income and retail sales. The result was not affected by recent increases in short-term inter-bank lending rates, as China adopts measures to control risks in its financial system. More here.
3. …but there’s still no respite for iron ore: Iron ore is yet to find a consistent bid in its downward spiral, falling another 3.25% to $66.25 per tonne overnight. Despite China’s strong GDP figures, the numbers showed that Chinese steelmakers still ramped up production in excess of demand, and the pressure on iron ore was exacerbated by strong inventory buildup due to high imports.
4. Australia today: The Reserve Bank of Australia releases the minutes from its April rates meeting. The Aussie dollar is holding in the high 75c range in early trade, despite global tensions, the drop in iron ore and a small rise in the US dollar index. Although the Trump administration continues to talk down the US dollar on trade concerns, US Treasury Secretary Stephen Muchin said overnight that a strong dollar is good for the US in the long term. Despite the solid performance from US stocks, the ASX 200 looks set to open lower with futures down 15 points.
5. Fate of the Euro hinges on French election: France goes to the polls this weekend with four candidates in the mix, and the Financial Times reports that implied volatility in the Euro ahead of the election is at its higest level since before the Brexit vote. Traders will be closely watching this week for any signs that the far-left and far-right candidates are gaining momentum. A victory for either mainstream candidate is expected to drive the Euro back towards $US1.15 from its current level at around $US1.06.
6. Emerging markets still attracting big money: In the intriguing world of emerging markets (EM), The Wall Street Journal reports that EM saw $US60 billion of foreign capital investment in the first quarter of 2017. With a myriad number of geo-political risks in April, some analysts think that figure may change in coming months. Tensions in Syria and North Korea, along with a hotly contested French election have combined to drive markets into a more risk-off position. A healthy $US29.8 billion of capital flowed into emerging markets in March — the most since January 2015 — and the concern is that the hunt for yield has caused investors to ignore the economic outlook and stability concerns in some countries.