To the scoreboard:
Dow: 20,524 -114 (-0.55%)
S&P 500: 2,342 -7 (-0.29%)
ASX SPI200 Futures – June (20 minute delay): 5,790 -38
AUD/USD: 0.7559 -0.0001 -0.01%
Iron ore benchmark 62% fines: $US63.20 -$US3.05 (-4.6%)
1. May will go to the polls in June: UK prime minister Theresa May’s snap election scheduled for June 8 drove the pound above $US1.28 overnight — its highest level since October last year. Analysts expect that an election win would provide May with a better position from which to negotiate the UK exit from the European Union while keeping trade-friendly agreements in place.
A stronger pound combined with an extra layer of political uncertainty drove Britain’s FTSE down by 2.46%. The UK market benefits from a weaker pound as 70% of revenue earned by FTSE100 companies is derived overseas. This chart from investing.com shows the jump:
2. Goldman Sachs sends US market lower: The bank reported a decline in trading revenue and net income missed analysts’ predictions, sending the stock down 4.7%. Healthcare and energy stocks also dragged on the market as global risk appetite continues to wane. USD/YEN fell back below 109 and the yield on US 10-year treasuries fell below 2.2%, their lowest level since US president Donald Trump’s shock election win last November.
3. Iron ore still in the wars: Spot markets for benchmark 62% fines dropped another 4.6% last night to $63.20 a tonne and futures were lower this morning. Geo-political risks combined with oversupply of iron ore and decreased steel production continue to force the price down. It doesn’t bode well for Australian markets today, with big miners preparing to feel more pain and ASX200 futures down 38 points.
4. Data today: In Australia, the ABS reports monthly new motor vehicles sales for March. Later tonight the Eurozone reports yearly inflation figures for March, with headline inflation forecast at 1.5% and core inflation at 0.7%. The US Energy Information Agency (EIA) has weekly petroleum inventories and the US Federal Reserve will release its “Beige Book” – a collection of data that precedes the Fed’s next interest rate meeting in two weeks.
5. Bulls vs Bears in a battle of the global oil market: Oil fell by about 1% overnight, following strong gains in April which have driven benchmark crude above $US55 per barrel. The global tug of war continues between extra production in the US shale oil market and and OPEC’s production cuts in effect since January. A preliminary report from the US government showed that shale oil drilling output is expected to reach over five million barrels per day next month. With competing forces battling to a draw overnight, focus will be on the US EIA’s inventory release tomorrow, with analysts forecasting a stock increase of 820,000 barrels.
6. How to trade on geo-political risk: Military tensions in Syria and North Korea, and political uncertainty in Europe have caused a re-allocation of capital into safer assets in recent weeks. With geo-political tensions high, this post by Eledna Holodny suggests that the best thing investors can do in the wake of an unexpected event is stay calm. Holodny cites research from Credit Suisse and Charles Schwab analysts which shows that downturns from geo-political events are generally short-lived and the overall effect on markets has been relatively minor.
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