US stocks are losing their gains as they head toward the close, despite an upbeat take on the economic and jobs outlook from Fed chair Janet Yellen.
But that slip comes amid thinnish pre-holiday trade and a triumvirate of news that suggests geopolitics will have great import in 2017.
On that news, Russia’s ambassador to Turkey was assassinated in Ankara, 3 people have been wounded in a shooting in Zurich, and several people have been killed and at least 50 wounded after a truck plowed into Berlin Christmas market.
The wash-up locally is that the SPI 200 futures are currently down 10 points after yesterday’s unexpectedly good half a per cent rise. The Aussie dollar remains under pressure though, around 0.7250 as the US dollar remains strong.
Elsewhere gold remains pressured, copper has fallen again, and oil is slightly higher.
Here’s the scoreboard (7.38am AEDT):
- Dow: 19881 +38 (+0.19%)
- S&P 500: 2259 +1 (+0.05%)
- SPI 200 Futures (March): 5,516 -12 (-0.2%)
- AUDUSD: 0.7248 -0.0050 (-0.68%)
The top stories
1. MYEFO – the government looked a gift horse in the mouth and said no thanks. Paul Colgan has a great article getting to the nub of the one big question facing the government and its forecasters in Treasury – what to do about the surge in commodity prices. That’s an important question given the strength of the rally in coal and iron ore since the lows earlier this year.
Paul says the government has opted for a reserved position on this, with its price forecasts for Australia’s key exports in coal and iron ore consistent with a view that the commodity price rally this year has been driven more by speculation or a temporary surge in demand than more sustainable, fundamental factors.
That means it has abandoned its normal practice of forecasting an average dollar price for metallurgical coal and iron ore.
It sets up a potential surprise for the government’s finance if the rallies prove sticky. But it also avoids the government getting caught in the markets commodity maelstrom.
2. Speaking of commodities – Chinese growth is expected to fall in 2017. Reuters reports that the Chinese Academy of Social Sciences (CASS) forecast China’s economic growth will slow again next year to 6.5 per cent. Coupled with that, Reuters also reported that the yuan will depreciate against the dollar by another 3 per cent to 5 per cent in 2017, ministry of commerce researcher Jin Bosong said on Monday at a press briefing.
Now, 6.5% growth in the world’s second-biggest economy is still strong. But a fall to this level would be the slowest pace of growth in a quarter century. It’s not terminal by any stretch, yet it suggests markets may again become focused on Chinese growth in the months ahead.
3. Ahh gold bugs, here’s a poke in the eye from Macquarie which says it doesn’t make any sense that gold is as high as it is. Gold made a low around $1050 around this time last year. Since then it’s been up to $1380 odd after Brexit and around $1340 odd in the immediate aftermath of the Trump electoral victory.
But even though it’s now sitting at $1138 – about 17% from the highs – a team of strategists at Macquarie are still wondering “why is the gold price so … high?”
4. Fed chair Janet Yellen delivered a very upbeat outlook for the US economy and the jobs market. Speaking at a commencement speech at the University of Baltimore early this morning, Fed chair Janet Yellen was about as ebullient as she gets when it comes to the jobs market the graduates will enter (NB: a commencement speech is made to the graduating class).
Akin Oyedele covers the speech here. But for me the key takeaway, besides Yellen’s comment that it’s the strongest jobs market in a decade, was “job creation is continuing at a steady pace; the layoff rate is low; and job openings are up over the past couple years, which is another sign of a healthy job market. There are also indications that wage growth is picking up, and weekly earnings for younger workers have made strong gains over the past couple of years.”
Only 3 rate hikes next year? What would Daryl Kerrigan say?
5. Here’s why Donald Trump will actually implement his policy prescriptions. This one is a bit more obscure than normal but it helps explain the rise of Donald Trump and perhaps the return of Pauline Hanson in a different way. That’s important because it avoids the pejorative conversation and language so many people use when describing the president-elect’s followers.
The Nation looks at Hunter S Thompson’s chronicling of the Hell’s Angels 50 years ago as an allegory to the rise of Trump. It’s a good read and you can find it here.
6. An economist who predicted a 17,000-point stock-market crash just 10 days ago is suddenly bullish. That’s some turnaround. But Harry Dent is all bulled up about the market because of the market’s ability to withstand the election of Donald Trump.
Dow 21500 and S&P 500 2500 in the first half of 2017, he now says.
From Ric Spooner at CMC Markets, here’s today’s Stock to Watch
A group of investors calling itself the Pacific Consortium recently lobbed a takeover bid for Tatts Group. This involved hiving off and selling the wagering and gaming part of the business and keeping the lotteries business.
Press reports yesterday suggest there may be plenty of interest in the wagering business. These unsubstantiated reports indicate that UK corporate bookmakers William Hill and Ladbrokes are both potential suitors.
The local Tabcorp which has already made an offer for the whole Tatts business is also presumed to be a player in this auction. The sale of Tatts wagering business will be one of the few remaining opportunities to acquire scale in the Australian market.
The Pacific Consortium is offering Tatts shareholders $3.40 cash plus one share in the new wagering business. They reckon this is worth between $1 and $1.60 depending on what synergies any trade buyers can extract.
If they are right, the minimum value of their total offer is $4.40 per share and yesterday’s reports saw Tatts moving away from this base, closing up 7c at $4.50.
Ric Spooner is chief market analyst at CMC Markets. You can follow Ric on Twitter: @ricspooner_CMC