To the scoreboard:
Dow: 21,410.03 -57.11 (-0.27%)
S&P 500: 2,435.61 -1.42 (-0.06%)
AUD/USD: 0.7552 -0.0001 (-0.01%)
ASX200 SPI futures (Sept contracts): 5,622 (+18)
Iron ore benchmark 62% fines: $US56.82/t (+0.66%)
1. Oil prices continue to crater: Benchmark crude fell more than 2% to below $US45 as the oil bear market continues. The main themes overnight were about rising production in Nigeria and Libya despite OPEC’s supply cuts and reduced demand from Chinese refineries. A higher than expected draw in the US EIA’s weekly inventory report was unable to reverse momentum as global storage remains high, with buyers still on the sidelines for now.
2. Mixed messages from the BOE: Bank of England chief economist Andy Haldane surprised currency markets with some hawkish comments about the UK economy. That offset a more dovish stance from BOE Governor Mark Carney on Monday and the pound climbed back above $US1.26. The pound’s strength helped to drive a weaker session for the US dollar, which fell back after a strong week but remains above 97. The Aussie dollar remains under pressure at around US75.5 cents.
3. Kiwi rocket: In keeping with the theme this week of central bank commentary moving currency markets, the Kiwi dollar jumped higher this morning following a more hawkish statement from the RBNZ. The bank kept interest rates on hold at 1.75% as expected, but its accompanying statement said that the country’s inflation target remained on track while appearing unconcerned about the recent strength in the currency. Here’s the sharp fall in AUD/NZD in early trade this morning:
4. ASX looks to recover: Futures traders see a glimmer of hope on the ASX this morning, but with the index back below 5,700, a broader question remains of whether global markets are moving away from Australian stocks. Perhaps tying in with that theme, yesterday’s selling was likely exacerbated by confirmation that shares on the Chinese mainland will now be included on MSCI’s Emerging Market Index, thus opening the way for more capital flows to move into Chinese stocks. Shares in Shanghai were up by 0.5% yesterday.
5. A new era for the middle kingdom: China’s inclusion in the MSCI Index was largely expected, but there’s likely to be much debate about how much it will change how Chinese companies operate. The Wall Street Journal reports that analysts are split in their initial reaction. On one hand there’ll be more opportunity to shine a spotlight on Chinese stocks and provide feedback, while others argue that it won’t change the status quo of political influence and excessive regulatory control by Chinese authorities.
6. Keep an eye on the bond market: Bond markets have been relatively quiet this week, but a note from the Financial Times suggests that it’s worth keeping an eye on bond prices if oil prices stay around their current lows. Despite already strong demand for US treasuries, the FT cited research which shows that US treasuries tend to move inversely to oil prices. If oil prices continue to fall then a bond rally may follow, and yields on US 10-year bonds could fall back below 2%.
You can find me on Twitter @Mr_SamJacobs.