6 things Australian traders will be talking about this morning

Photo: Spencer Platt/ Getty Images.

Good morning.

To the scoreboard:

Dow: 20,404 -119 (-0.58%)
S&P 500: 2,338 -4 (-0.17%)
ASX SPI200 Futures – June (20 minute delay): 5,784 -13
AUD/USD: 0.7491 -0.0003 -0.03%
Iron ore benchmark 62% fines: $US64.60 +$US1.40 (+2.2%)

1. Cautious with a small dose of optimism: Capital flows moved back out of safer trades overnight as the yield on US 10-year treasuries rose back over 2.2%, the US dollar index was up 0.3% and gold retreated towards $US1,280 an ounce. US stocks rose on good corporate earnings, but finished the day lower after the oil price got hammered. The GBP dipped back below $US1.28 but renewed strength in the pound continued to weigh on the UK’s export-heavy stock market.

2. Oil hits a two-week low: Benchmark crude and West Texas Intermediate both fell by over 3.5% on oversupply concerns, the biggest one-day drop since March 8. In the US Energy Information Agency’s weekly petroleum status report, it announced smaller than expected reduction in crude inventories, at the same time as gasoline stockpiles unexpectedly increased. Reuters reports that consistently high stockpiles in the US is off-setting around one third of the 1.8 million barrels per day of cuts that OPEC agreed to in January.

3. AUD weakens further overnight: After falling on Asian markets late yesterday, the AUD fell below US75c overnight with the AUD index down 0.77%. A stronger US dollar resulting from higher US bond yields weighed on the Aussie, combined with headwinds caused by the 30% plunge in iron ore. At long last, iron ore finally caught a bid but it’s a long way back to the February highs of over $90 per tonnne.

The AUD was down against the Kiwi ahead of New Zealand’s CPI data today, with annual inflation forecast at 1.9%. In Australia today, NAB reports its quarterly business confidence index after strong results for March last week.

4. Traders hedge bets on tech ahead of US earnings season: With a prevailing theme of caution in April, markets are particularly sensitive to US profit results for justification of current stock prices. This post from Joe Cioli dissects some traders concerns about exposure to US tech companies as earnings season gets underway. With analysts now forecasting 16% earnings growth this reporting season (up from 10%), Cioli notes that investors are now paying the highest premium since December for downside protection from an Exchange Traded Fund which tracks the tech-focused NASDAQ 100.

5. Risks apparent in China’s corporate bond market: The yield spread between AA rated and AAA rated corporate bonds in China has narrowed to its lowest level since December as investors buy up riskier debt, the Wall Street Journal reports. The demand for riskier AA loans comes despite the fact that China’s central bank has tightened monetary policy since the middle of last year to cool off debt markets. It shows the risks still apparent in China’s bond market, which is now the world’s third largest but remains underdeveloped and struggles to attract foreign capital.

6. Fink fires back: Larry Fink, CEO of $US5 trillion asset manager Blackrock, doesn’t think regulation is a bad thing. Fink disputed the assertion of JP Morgan CEO Jamie Dimon who said that stricter loan requirements hurt lower-income borrowers who couldn’t access the market. Fink said that improved regulation meant that “inappropriate” loans were now less likely. He suggested that banks would benefit by improving their relationship with regulators and not engaging in costly legal battles.