Good morning and happy Friday.
To the scoreboard:
Dow: 21,359.90 -14.66 (-0.07%)
S&P 500: 2,432.46 -5.46 (-0.22%)
AUD/USD: 0.7581 -0.0008 (-0.09%)
ASX200 SPI futures (Sept contracts): 5,723 (+19)
Iron ore benchmark 62% fines: $US55.23/t (+1.47%)
1. US stocks edge lower: US stocks and currency markets are siding with the Federal Reserve’s view that recent softness in inflation data is temporary and another rate rise is still on the cards for 2017. That dragged the S&P500 slightly lower, with money moving out of tech stocks into safer utilities. The US had some good news on the data front overnight with initial jobless claims beating expectations. Bond yields rose slightly and the US dollar index was up by more than 0.5%.
2. Hawkish Fed gives the US dollar a boost: The most noticeable gains were in USD/YEN, with the dollar almost back to 111 Japanese yen after dipping below 109 after the Fed’s interest rate announcement. The AUD couldn’t hold above US76 cents and the Euro is back below $US1.12 ahead of European CPI figures later tonight. The Bank of England kept rates on hold as expected, but expressed a somewhat hawkish tone about inflation risk. That saw the pound jump to almost $US1.28 before falling back later in the session.
3. Asian markets: Yesterday’s selling on the ASX seemed to be based largely on technical indicators, with the market unable to find support above 5,800 despite a strong employment report. Big miners may find some buyers today after being sold off heavily yesterday, as spot iron ore prices posted their second straight day of gains overnight. Japan’s Nikkei index is likely to gain with a weaker yen, ahead of the Bank of Japan’s interest rate decision this morning.
4. Crypto-crash: There’s never a dull moment with Bitcoin, and the crypto-currency has now lost around $US10 billion in market value this week. It plunged by another 5% overnight and is trading back below $US2,400 as markets continue to debate whether it’s a speculative bubble or the currency actually has some intrinsic value. The next key roadblock for market liquidity is the US Securities & Exchange Commission, which is yet to approve a proposal for a Bitcoin Exchange Traded Fund (ETF).
5. How’s that yield curve looking? While the US Fed remains confident about inflation, the bond market is less convinced. This post by Jonathan Garber gives a good summary of the flattening spread between US 2-year and 10-year treasuries as longer term yields continue to fall. If the yield curve continues to flatten or even goes negative, historically that’s been a good predictor of recessionary economic conditions.
6. Snap Inc falls out of favour: After climbing as high as $US27, Snap Inc (the parent of Snapchat) is now trading at $17, which is the same price as its IPO in March. Analysts are concerned about the company’s ability to innovate amid strong competition from Facebook. The company is still yet to find traction with marketers, with only 7% of social media marketers saying that they used Snapchat in the first quarter of 2017.