Good morning and happy Friday.
To the scoreboard:
Dow: 21,397.29 -12.74 (-0.06%)
S&P 500: 2,434.501 -1.11 (-0.05%)
AUD/USD: 0.7540 -0.0013 (-0.17%)
ASX200 SPI futures (Sept contracts): 5,622 (+18)
Iron ore benchmark 62% fines: $US56.82/t (+0.66%)
1. Oil gets a temporary respite: Oil prices found a floor overnight after benchmark crude fell below $US45 this week for the first time since November, but traders remain sceptical about OPEC’s ability to curb oversupply in the near-term. In an otherwise quiet night in global markets, gains in healthcare stocks were offset by a fall in banks as US stocks finished flat.
2. A new disconnect: The fall in oil prices is another factor that serves to temper inflation expectations in the US. The yield curve remains flat and markets are unconvinced about the US Federal Reserve’s position that the economy is tracking towards its inflation target. To demonstrate, this chart shows how the US 2-year yield curve has been more or less unresponsive to the Fed’s rate hikes this year:
3. Levies here, levies there: With no major moves on global markets, it points to a relatively quiet open for Australian stocks after some bargain-hunting yesterday following Wednesday’s selloff. The immediate market reaction was relatively muted yesterday to the SA Government’s decision to impose its own bank levy, although it raises concerns that other states could follow suit at a time when Australian banks are already facing headwinds from the federal levy and housing market risk.
4. No seventh heaven: Iron ore’s recent winning streak stopped at 6 days, as spot prices for benchmark 62% fines followed steel prices lower last night. The fall was driven by a buildup of supply from Chinese steel mills at a time when demand is softening as summer weather conditions in China impact construction. Other commodities were mixed, while gold was higher as a stall in the US dollar rally at the end of this week helped buffer prices back above $US,1250 an ounce.
5. Forex wrap: The USD index a little weaker and there were limited moves in the Euro and Pound. The Aussie dollar fell slightly against the greenback and lost 0.65% against the NZD. The Kiwi continued to perform strongly after short positions were unwound following the RBNZ’s optimistic outlook yesterday after it kept interest rates on hold at 1.75%. The Canadian dollar was the other performer, with CAD/USD up 0.7% on strong retail sales which reversed the previous day’s falls.
6: When Wall St gets it wrong: While the US Fed remains optimistic about inflation, demand for US government bonds has recently climbed. But just three months ago, analysts were predicting that 10-year US bond yields would rise to 2.9% over the next year (they’re currently at 2.15%) . This fun chart shows that when it comes to forecasting US bond yields, Wall Street economists are routinely too buoyant themselves:
Find me on Twitter @Mr_SamJacobs.