Morning! Here’s what traders will be talking about before markets open.
To the scoreboard:
Dow: 20,702 +151 (+0.73%)
S&P 500: 2,358 +16 (+0.70%)
ASX SPI200 Futures – June (20 minute delay): 5,826 +13
AUD/USD: 0.7632 +0.0017 (+0.22%)
Iron ore benchmark 62% fines: $US82.01 +$US0.54 (+0.65%)
1. Markets revert to risk-on: Some great US data proved just the antidote to bearish caution on political concerns, and the bulls took charge in overnight trading. That sentiment is likely to guide price action for Aussie stocks today, with ASX200 June futures 13 points higher after a buoyant session on US markets. Mired in an 8-day losing streak, the Dow reversed course and jumped by 0.7% on the back of more strong data. US balance of international trade narrowed in February due to a sharp drop in imports, while consumer confidence hit a 16-year high and the Case-Shiller Home Price Index reported robust growth. Yields on US treasuries rose slightly, with the 10-year back over 2.4% as Federal Reserve vice president Stanley Fischer maintained the Fed’s recent stance that another two rate increases in 2017 is the most likely scenario. The US dollar index rose by 0.55% and performed strongly against all major currencies.
2. Iron ore climbs off the canvas: After getting repeatedly smoked over the previous week to the tune of almost 12% in losses, iron ore finally rebounded and futures point to further price stabilisation when markets re-open. Although the market has been subject to much price speculation lately, the underlying demand fundamentals for steel in China are expected to provide a price floor for iron ore. With construction season underway in China, the need for steel is likely to outweigh efforts by Chinese regulators to artificially control the steel price. The Aussie dollar briefly traded under US76c overnight, but the rise in iron ore prices helped to off-set a strongly performing USD later in the session.
3. Brexit will be triggered today: Although the initial impact has already been priced into markets, today marks the moment when British prime minister Theresa May will formally trigger Article 50 of the Lisbon treaty. The FTSE shrugged off any lingering doubts on Brexit eve, rising by 0.68% as part of a global rally in stocks. The pound fared worse as it dropped back below $US1.25 after Scotland’s parliament voted in favour of a second independence referendum. The referendum vote will require approval from the UK parliament before it can commence. The Brexit negotiations will commence as comments from German Finance Minister Wolfgang Schäuble suggest that Germany will be taking more of a hard line stance in upcoming negotiations.
4. Oil back up on supply disruptions: Geo-political risk became a factor overnight as one of the many competing forces influencing the complex outlook for the oil market. Benchmark crude and West Texas Intermediate (WTI) both climbed as much as 2% and settled over 1% higher, as armed militants blocked production at oil fields in Western Libya, reducing Libya’s daily production by 252,000 barrels (about one third of Libyan output). The Iranian oil minister said that the OPEC supply cut agreement is likely to be extended beyond June. Focus will be on the US Energy Information Agency’s weekly report on US oil inventories which comes out today, after last week’s reported inventory levels smashed forecasts.
5. Could the future bring…bitcoin futures?: Bitcoin has been in the wars lately, with a split in the industry about how to process growing transaction volumes and multiple rejections by the US Securities & Exchange Commission (SEC) to get Bitcoin Exchange Traded Funds (ETFs) listed on US stock exchanges. One solution could be to introduce a US market for Bitcoin futures, which if popular would open up liquidity flows in the sector and provide grounds for the regulatory approval of ETFs. The US Commodity Futures Trading Commission appears open to the idea, although even if futures markets took off and regulators saw evidence of proven liquidity, the approval process for an ETF would still be another 12 to 18 months down the track.
6. Beware the Asian tiger: While the US accounts for over a third of global stock market capitalisation, its share has reduced this year while Asian markets rise steadily. After reaching a 38.5% share following last year’s election, the US slice of the pie has dropped back by 2% in 2017. Prior to the global financial crisis in 2008, Europe made up the second highest percentage of global market cap but was then eclipsed by Asia. Since the beginning of 2014, the percentage share of Asian economies has risen significantly from around 20% to just under 30%, and remains on an upward trajectory.