Good morning and happy Friday.
To the scoreboard:
Dow: 21,553.09 +20.95 (+0.10%)
S&P 500: 2,447.83 +4.58 (+0.19%)
AUD/USD: 0.7732 +0.0053 (+0.70%)
ASX200 SPI futures (Sept contracts): 5,684 (-9)
Iron ore benchmark 62% fines: $US65.91 (+2.8%)
1. Markets stay on track: Global markets tracked on a similar path to the previous session overnight, as US Fed Chair Janet Yellen reiterated that the pace of interest rate increases would be gradual. Markets moves weren’t as pronounced, although US stocks edged closer to just off record highs, with the USD index slightly lower. ASX futures traders aren’t as confident though, marking the local index down 9 points to finish the week.
2. Bonds reverse: While stocks and currencies moved in line with the previous session, bond yields rose slightly. US 10-year bonds were 3 basis points higher at 2.35%, while Australian 10-years moved back above 2.7%. German bond yields also moved higher, topping 0.6% for the first time since December 2015. Following Yellen’s two-day testimony, the CME Fedwatch Tool has assigned a 47.9% probability of another rate increase in the US by the end of the year.
3. Aussie is up and about: The Australian dollar continued its advance overnight before finding resistance at US77.4 cents. The US dollar index fell to a 10-month low under 95.5, before a late rally supported by promising employment data. The euro was lower while Canada’s “loonie” moved further above US78 cents, with the prospect of an October rate hike by the Bank of Canada currently priced at 65%.
4. Key data comes later: Regionally, there’s Japan industrial production and NZ manufacturing PMIs. With no major data today in the Asia-Pacific, markets may be in a familiar Friday holding pattern awaiting key US data releases at the end of the week. Later tonight, the US has key inflation data for June, along with retail sales and industrial production figures. US earnings season also kicks off tonight.
5. Good session for commodities: Iron ore got back in the saddle last night, with benchmark 62% reversing the previous days losses. Despite some recent volatility, prices were supported by regulatory moves in China to cut over-capacity in the steel sector as well as strong Chinese trade data. Benchmark crude oil rose by another 1.4% as the recent rally towards $US50 barrel forced traders to cover their short positions.
6. It’s all about inflation: If the record high prices of US stocks has you worried, keep an eye on the inflation rate. As Deutsche Bank chief economist Torsten Slok points out, historically stocks have had an inverse relationship to interest rates but right now that’s not the case. Slok said that as long as inflation stays low, stocks are unlikely to fall even if the US Fed continues to raise rates at a steady pace.
Friday bonus: Business Insider’s Joe Ciolli sat down with Kate Moore, the chief equity strategist at $US5.4 trillion asset manager Blackrock. It’s a great interview and well worth a read.
Enjoy the weekend, you can find me on Twitter @Mr_SamJacobs.