To the scoreboard:
Dow: 20,659 -42 (-0.20%)
S&P 500: 2,361 +2 (+0.09%)
ASX SPI200 Futures – June (20 minute delay): 5,865 +5
AUD/USD: 0.7666 +0.0033 +0.43%
Iron ore benchmark 62% fines: $US82.25 +$US0.24 (+0.29%)
1. ECB says not so fast: The European Central bank (ECB) has gone straight back into a defensive stance in its near-term outlook, after guidance stemming from its March meeting sparked noticeable market movements. With the Eurozone showing the first positive signs of economic activity in almost 10 years, comments from the ECB about reduced tail risk were interpreted as step one in exiting its stimulus program. Markets subsequently priced in a rate hike as early as the first quarter of 2018 causing yields to rise, and the ECB has been in damage control since. A significant policy change would put pressure on key Eurozone economies like Spain, Italy and Portugal, where debt repayments remain high and a rise in yields would negatively affect growth. The Euro dived upon news breaking of the ECB clarifying its current position. The currency lost almost 1% against the AUD, which performed strongly overnight on the back of strong commodity prices, as iron ore posted its second straight day of gains.
2. Oil goes up as supply goes down: With all eyes on the US Energy Information Agency’s weekly inventory report, the figures definitely moved the market overnight as the 867,000 barrels on hand was significantly below forecast and prices shot up 2%. Benchmark crude rose over $US52 a barrel and West Texas Intermediate finished above $US49. US refineries increased processing during the week after refinery maintenance, and there was also a significant drop in oil imports. Continuing interruptions to global supply from the conflict in Libya also propped up prices. With oil prices hovering around the $50 mark, analysts forecast that OPEC will eventually agree to extend the six months of supply cuts agreed to in November.
3. Brexit (non) reaction: As expected, there were no major moves on markets as Britain triggered Article 50 as any near-term consequences were already priced in. With no major cues, markets were relatively quiet overnight. Global stocks were little changed, and the US dollar index rose by 0.2%. The pound index was down 0.4%, although Blackrock’s global head of bonds Scott Thield said the asset manager remains long on the British pound despite Brexit risks. US treasuries gained slightly as investors look for clues as to the US Federal Reserve’s next move. San Francisco Fed president said overnight that investors shouldn’t rule out more than three rate hikes this year, but US treasuries are likely to trade in a narrow range leading up to the next major data point, with March employment figures released on April 7.
4. Rise of the robots: In a significant strategy shift, Blackrock (the world’s biggest asset manager) has given its business a shakeup with computer power the new order of the day. The investment fund, which manages $US5.1 trillion, has cut stuff in its active investment manager ranks and will also be reducing fees as the funds management industry battles reducing returns and a resulting flight of capital. Active stock pickers have struggled in recent years to provide an adequate return, and the popularity of passive investment models based on computational analysis of large amounts of quantitative data has continued to rise. Blackrock’s decision is reflective of a shift towards passive investment strategies that’s been under way for the last 12-18 months.
5. US stocks are pricey, but upside remains: With speculation from most corners that US stocks look overvalued, analysts think that the market is close to fully priced but can still rise by the end of the year. This survey of more than 40 strategists revealed a median forecast for the S&P 500 to reach 2,425 by the end of the year, 2.6% higher than today’s close. With a forward price/earnings ratio of 18 (historical average is 15), the market looks bubbly unless strong gains in the upcoming US earnings season can justify current prices. According to the analysts surveyed, the key themes remain centred around market expectations for tax reform and the effect of any changes to the US Fed’s interest rate forecasts.
6. And the award for Australia’s most shorted stock goes to…: Aconex Ltd. The Melbourne-based company provides cloud software platforms for architects and developers. Interestingly, despite being the most shorted stock on the Aussie market, only 1 of the 10 analysts covering it recommends selling the stock. The stock quadrupled in value after listing in December 2014 as it regularly beat revenue forecasts, then started a slide from the middle of last year as it missed revenue estimates. Clearly there’s a stark contrast in views as to the company’s future earnings. Short sellers are concerned about Aconex’s high price to earnings ratio and misrepresntative profit figures through the capitalisation of expenses, while bullish analysts believe it has demonstrated clear earnings power and continues to win long-term contracts.