The scoreboard (8:00am AEDT):
Dow: 20,661 -7 (-0.03%)
S&P 500: 2,349 +5 (0.19%)
ASX SPI200 Futures – June (20 minute delay): 5,687 +19 (+0.34%)
AUD/USD: 0.7677 -0.0013 (-0.17%)
Iron ore benchmark 62% fines: $US84.99 -$US2.60 (-2.9%)
1. Steady: Aussie stock futures are pointing to a quiet open as US markets stabilized overnight, trading flat after shedding 1.5% yesterday. Investor attention is focused on Washington and the Trump administration’s proposed bill to repeal healthcare laws. Republicans may aim to move the bill in Congress later today, and how it proceeds is seen as a leading indicator for the effectiveness with which Trump will be able to enact is stock-friendly tax and infrastructure policies. London’s FTSE was down 0.7% but there was a minimal response on the market to this morning’s terrorist attack on the UK parliament.
2. Commodities tank: Weekly US oil inventories were released overnight, increasing by 5.8 million barrels (2.8 million forecast). That meant benchmark crude prices briefly dipped below $US50 a barrel and West Texas Intermediate (WTI) traded in the $US47 range. The boom in US shale oil production has increased the pressure on OPEC. Saudi Arabia is currently bearing the brunt of the supply cuts agreed to last November, and a decision to further extend cuts at the next OPEC meeting in May will take a high degree of political cooperation. Meanwhile iron ore got smashed again, dropping to its lowest level since February 9 before futures stabilized in late session trading.
3. Risk off with bonds and currencies: Money continues to move into safe haven trades as the US dollar hit a four-month low against the Yen overnight, dropping below 111 before a late gain. A revised interest rate outlook and doubts about fiscal policy is also driving treasuries higher, as the yield on US 10-year notes fell to their lowest level since late February. As a higher risk, commodity-linked currency the AUD continues to face headwinds, but it made gains against its Kiwi counterpart after the New Zealand central bank kept interest rates on hold (in line with forecasts) at 1.75%.
4. Data today: The Australian Bureau of Statistics releases demographic statistics and labour force data today. In a packed week of speaking engagements for the US Federal Reserve, focus will be on Fed Chair Janet Yellen’s keynote address in Washington (11:45pm AEDT). Later in the day Minnesota Fed chair Neel Kashkari will speak — he was the only dissenting member in the Fed’s recent decision to raise interest rates. The US will also report on monthly jobless claims and new home sales overnight.
5. Stock market danger signals: Equity analysts at Credit Suisse have raised their year-end prediction for the S&P 500 to 2500, but that doesn’t mean they aren’t keeping a close eye on key indicators for a downturn. In the bank’s view, stocks still look cheap relative to bonds and earnings momentum remains strong. Cause for caution remains though. Cyclical stocks (think consumer discretionary spending, like big retail companies) are underperforming, which often acts as a leading indicator for the broader market. You can see a table of Credit Suisse’s key factors for a market peak here.
6. Sovereign wealth funds – with a twist: Sovereign wealth funds are typically associated with wealthy countries, who use the vehicle as a diversification strategy to invest internationally, build savings and control inflation. Turkey, Romania, India and Bangladesh are launching sovereign wealth funds of their own, but the focus will be on boosting their domestic economies. Although there’s a risk of corruption (see: Malaysia), the creation of sovereign wealth funds in developing nations has the benefit of providing a base to open up capital flows and attract international investment.