Good morning and happy Friday.
To the scoreboard:
Dow: 21,611.78 -28.97 (-0.13%)
S&P 500: 2,473.45 -0.38 (-0.02%)
AUD/USD: 0.7955 -0.0002 (-0.03%)
ASX200 SPI futures (Sept contracts): 5,688 (-11)
Iron ore benchmark 62% fines: $US68.05 (-3.12%)
1. Euro climbs as Draghi guides the way forward: ECB President Mario Draghi confirmed that at the bank’s next meeting in September, it will discuss tapering its quantitative easing program. He also said “a very substantial degree of monetary accommodation is still needed” given the low inflation rate. Draghi was somewhat indifferent to current market reactions in currencies and bonds, making no clear attempt to talk down the euro. That helped push the euro above $US1.16 to its highest level since August 2015.
2. Big day ahead for the Aussie: The Aussie dollar fell to US79 cents overnight before rallying, ahead of a speech today by RBA deputy governor Guy Debelle in Adelaide at 12:40pm AEST – certain to be a key event for currency markets given the recent strength in the AUD. The US dollar fell by another 0.5% overnight with a stronger euro and more political turmoil. US jobless claims fell to a 9-week low but the Philadelphia Fed manufacturing index missed expectations, recording its lowest reading since November last year.
3. Bonds & stocks quiet: Government bonds for major Eurozone economies rallied slightly on the news with yields lower. The yield on benchmark 10-year US treasuries also fell slightly to 2.26%. US stocks traded flat, although the tech-focused NASDAQ index closed at an all-time high for the third straight day. The rise in the euro weighed on stocks in Europe, with the broader STOXX600 index falling by 0.4%. The MSCI Emerging Markets index dipped by 0.11%, and ASX200 futures are pointing lower to start the day.
4. Bitcoin on the rampage: Bitcoin had an impressive surge overnight — even by its standards — climbing by around $US450 to its highest level since late June. It follows a research note from Goldman Sachs yesterday which said the currency could climb back over $US3,000. Today marks the commencement of the 10-day trial period agreed to by the Bitcoin community, with the implementation of a new revised Bitcoin platform which will double transaction speeds.
5. Iron ore finally hits the brakes: After rocketing past $US70 a tonne for the first time since May, iron ore benchmark 62% fines followed spot steel prices lower and dropped by 3% overnight. Benchmark crude oil prices briefly climbed above $US50 a barrel after this week’s big draw of US inventories, but closed 0.8% lower at $US49.30. The continued weakness in the US dollar is providing a more favourable backdrop for gold, which remains supported above $US1,240 an ounce.
6. Doomsday scenario for Italy: Italy is currently saddled by debt of $US495 billion — around 25% of its GDP, and it could come back to bite it. With an election scheduled for no later than May next year and populist party M5S finding support in the polls running on an anti-euro platform, Oxford Economics analyst Taha Saei has run some numbers on what would happen if Italy abandoned the euro currency. It’s not pretty – Italy’s debt pile would be lumped on the rest of Europe, and Saei argues that could wipe 0.4% from global GDP.
Friday bonus: Bond fund manager Bill Gross has released his July investment outlook, and as usual it contains some colourful commentary. His analogy for the current state of the global bond market is worth a read.
Find me on Twitter @Mr_SamJacobs.