Good morning and happy Friday.
To the scoreboard:
Dow: 20,579 +174 (+0.85%)
S&P 500: 2,356 +18 (+0.56%)
ASX SPI200 Futures – June (20 minute delay): 5,833 +30
AUD/USD: 0.7522 -0.0004 -0.05%
Iron ore benchmark 62% fines: $US65.36 +$US0.76 (+1.2%)
1. Global markets wrap: US stocks rose led by financials. With earnings season underway, American Express surprised on the upside and jumped 5.9%. US markets got a boost from Treasury Secretary Stephen Mnuchin, who said that tax-cut reform plans were in the works and that tax legislation would be passed this year regardless of whether healthcare laws were changed. That also sent US bond yields slightly higher and the US dollar strengthened. European and UK markets traded flat as a terrorist attack rocked Paris.
2. Central bank policy helps US bonds, dollar: In addition to Mnuchin’s comments, Dallas Federal Reserve president Robert Kaplan said there was no change to the Federal Reserve’s view that three interest rate increases this year remains appropriate. The end result for US 10-year treasury yields was a slight gain to 2.24%. The likelihood of a June rate hike is currently priced in at 60%. Bank of Japan Governeor Haruhiko Kuroda said that Japan’s interest rate policy would remain accommodative, and that helped drive the US dollar back above 109 Japanese yen.
3. It’s all about the French election: The French election (Monday morning Australian time) looms as the next major market-moving event. Although polls overnight reinforced centrist (and market friendly) candidate Emmanuel Macron as the favourite, a fourth candidate has gained traction and the disillusioned French electorate (up to 30% may not vote) raises the chance of a shock result. This primer from Chris Weston at IG Markets is a useful guide for what traders need to watch for ahead of Monday’s vote.
4. Iron ore and the AUD both rise: Iron ore posted gains for the second straight session, getting a positive flow-on effect as as demand rose for steel in Northern China. Futures point to more gains ahead when the market re-opens at 11am AEST. With iron ore finally seeing a floor at least for the short term, the Aussie dollar got some support but backtracked later in the North American session as the US dollar strengthened. Currency markets are likely to tread water on Friday ahead of the French election result.
5. Mystery trader “50 Cent” is down $89 million: The low volatility in markets this year has so far cost one trader dearly. Nicknamed “50 Cent” due to their preference for contracts of that amount, the mystery trader has bet on a rise in the CBOE Volatility Index (VIX) which so far hasn’t eventuated. Although the VIX has climbed recently on geo-policital risk and concern about fundamentals, it’s still traded within a narrow range this year and that’s left 50 Cent with some serious ground to make up.
6. Blackrock gives China the thumbs up: In what may be a key development for Chinese stocks, The Wall Street Journal reports that Blackrock has given its seal of approval to include shares of mainland Chinese companies in global stock indexes. The world’s largest asset manager said that it was comfortable with Chinese stocks included on the MSCI index, which money managers like Blackrock use to guide huge flows of global capital. Previously MSCI Inc. had deemed Chinese markets too opaque, and only Chinese stocks trading in Hong Kong or New York were included in the index.