To the scoreboard:
Dow: 20,996 +232 (+1.12%)
S&P 500: 2,387 +13 (+0.5%)
AUD/USD: 0.7538 +0.0002 +0.03%
ASX200 SPI futures (June contracts – 20 minute delay) 5,899 +25
Iron ore benchmark 62% fines: $US66.07 -$US0.46 (-0.69%)
1. US markets surge ahead. US stocks are on the move, and the tech-heavy Nasdaq index closed above 6,000 points for the first time. Some strong earnings results, new home sales surprising on the upside and optimism in global markets after the French election all contributed to strong gains overnight. It bodes well for the Australian market this morning, given the lead from materials and industrial metals stocks in the US and the heavy weighting of those sectors in the Australian market.
2. Markets hit the risk-on button after French election. With Emmanuel Macron’s victory seen as a key test for stability in the European Union, money has moved out of safe-haven trades to start this week. The US dollar now buys over 111 Japanese yen, a gain of almost 2%. 10-year US treasuries have jumped back over 2.3%, and gold lost around $US12 an ounce last night to be trading at $US1,265.
To get an idea of the relief in global markets, the VIX index (a measure of future market volatility) dropped by a whopping 25% after the election result:
3. Data today. The Australian Bureau of Statistics releases Consumer Price Inflation (CPI) data for the March quarter at 11:30am AEST. The market has forecast headline quarterly inflation of 0.6% and an annual rate of 2.2%. CPI data provides a key guide for the Reserve Bank’s interest rate policy, and Business Insider will provide full analysis of the result. Overnight, the Trump administration will announce more details on its tax reform plans, and as usual the US Energy Information Agency’s weekly report of US oil inventory will be closely watched.
4. Euro is flying high. The euro has surged above $US1.09, its highest level in over five months. It’s obviously benefited from extra stability since the French election result but that may not be the only driver of gains. Reuters reports that sources close to the European Central Bank (ECB) said that with signs of strength in the European economy, the bank may look to reduce some stimulus measures at its June meeting. The Aussie dollar continues to under-perform given the higher level of risk appetite. Despite edging higher in morning trade, it lost 0.35% overnight against the US dollar and more than 1% against the euro.
5. Iron ore steadies the ship. Spot prices for iron ore may have found some stability, after well-documented price falls of over 30%. Prices for benchmark-62% fines retreated slightly overnight but remain steady at just over $66 per tonne. There may be more good news in the day session starting at 11am, with iron ore futures currently up by almost 2%.
6. But while we’re on iron ore… Goldman Sachs analysts now rate BHP a sell, and it’s because the commodities cycle (particularly iron ore) has taken a turn for the worse. With iron ore making up around 41% of BHP’s revenue, Goldman said that the recent price downturn and a grim outlook for future price increases would weigh on BHP’s cash flow. The bank cited the build-up of iron ore inventory in China as a key factor that would weigh on prices.