To the scoreboard:
Dow: 20,982 +85 (+0.41%)
S&P 500: 2,402 +11 (+0.48%)
AUD/USD: 0.7415 +0.0022 (+0.30%)
ASX200 SPI futures (June contracts – 20 minute delay): 5,835 +17
Iron ore benchmark 62% fines: $US60.80 -$US0.580 (-0.95%)
1. Oil rockets higher on OPEC extension: A higher oil price drove markets higher overnight, with the S&P500 hitting a new record above 2,400. As David Scutt reported yesterday, the Saudi Arabian and Russian energy ministers agreed to extend OPEC’s supply cuts until March next year. That moved markets, with oil prices up more than 2% and energy stocks in turn dragged global indexes higher. Also supporting stocks is that a strong earnings season is justifying high valuations, with US companies on track to post Q1 2017 growth of 13.6% — the highest since 2011.
2. US dollar is weaker across the board: The US dollar is down by 0.35%, driven lower by the surge in oil and a sharp downturn in New York manufacturing data. The greenback fell against both G10 currencies and developing nations, with net USD long positions falling to their lowest level since August. The Russian ruble gained 1.3% after the OPEC agreement, and the Aussie dollar moved back above US74 cents after getting a boost from the oil price.
3. Is there a US flight of capital? The US dollar’s fall could also be part of a trend away from USD-denominated assets, with a notable shift identified last week showing fund flows moving into European stocks. While stocks are still buoyant, some poor recent data has raised doubts about the structural rate of growth in the US economy. Yesterday we showed the sharp divergence between the Citi economic surprise index and the S&P500. Perhaps in line with this lingering negative sentiment, the CME Fedwatch tool has revised the probability of a US rate hike in June down to 73.8% after it reached 87.7% a week ago.
4. Foreign earnings drive US stock growth: And in keeping with a slightly anti-US theme, this interesting post shows that within the bumper earnings season for listed US companies there was one group of companies that stood out. While total growth for S&P500 is projected to hit 13.6%, companies that earn less than 50% of their profits are projected to see a booming 21% increase. That’s more than double their peers with more than 50% of their revenue from domestic sales:
5. Data today: The RBA will release the minutes from its May monetary policy meeting at 11:30am AEST. It could give more momentum to the Aussie dollar today if the bank sticks to its upbeat projections for near-term economic growth. Tonight the UK has annual inflation data, and the US has housing starts and industrial production figures for April.
6. Crypto-currency frenzy: Bitcoin topped $US1,700 for the first time last week. The success of the crypto-currency is also fuelling an explosion in other crypto-currencies. The Financial Times reports that there are now 830 alt-coins on the market, with initial coin offerings (ICOs) becoming increasingly common on un-regulated alt-coin exchanges. That obviously comes with a high degree of risk, but the speculation in the market looks here to stay until regulators get involved.