Good morning. To the scoreboard:
Dow: 21,580.07 -31.71 (-0.15%)
S&P 500: 2,472.54 -0.91 (-0.04%)
AUD/USD: 0.7915 -0.0043 (-0.54%)
ASX200 SPI futures (Sept contracts): 5,639 (-25)
Iron ore benchmark 62% fines: $US67.14 (-1.3%)
1. No respite for the USD: The US dollar index continued its recent slide on Friday, falling below 94 for the first time since April 2016. Recent US data points have been trending on the weaker side, while pressure on the USD last week was also driven by more political turmoil in Washington. It pushed the euro to a 1-year high further above $US1.16, while the greenback also fell to a 1-month low against the Japanese yen.
2. Aussie finds resistance: The AUD reached a high of US79.7 cents on Friday, before declining following a speech from RBA deputy governor Guy Debelle. Debelle tempered market expectations around the timeline for an interest rate increase in Australia, after the minutes from the RBA’s July meeting (released on Tuesday) were interpreted as being more hawkish in nature. While that sent the AUD briefly back below US79c, it edged higher in overnight trade. The direction of the AUD this week is likely to be guided by the all-important release of quarterly CPI data on Wednesday.
3. ASX200 pointing lower: US stocks traded flat but continue to shrug off the weak US data and political gridlock, as the S&P500 dipped slightly from last week’s new record highs. Continued gains in the euro caused jitters in European stocks, with the pan-European STOXX600 index falling by 1%. Germany’s export-heavy DAX index felt the impact of a stronger currency, falling by 1.7% to lead the major European markets lower.
4. Bond market finds support: European bonds rallied last week, with the yield on German 10-year notes falling by 9 basis points while Italian and Spanish bond yields tumbled by 20 basis points. It suggests that despite indications from the ECB that it may reduce its bond purchasing program, bond markets are comfortable that it that the pace of any stimulus withdrawal will be measured. Benchmark US 10-year treasuries also closed the week lower at 2.24%.
5. Oil takes a tumble: Oil prices fell by 2.5% on Friday amid concerns about the effectiveness of OPEC’s supply cuts in reducing the global supply glut. Reuters reported that OPEC’s secretary general talked up prices over the weekend, arguing that the pace of supply withdrawal had been slower than expected but would accelerate in the second half of this year. Iron ore fell for the second straight day, as steel mills hesitated to buy at the $US70/t level.
6. Sign of the next crash?: Stocks in the US hit new record highs last week, and market volatility is at a more than 20-year low. Not surprisingly, stock investors are feeling buoyant – evidenced by the fact that both private clients and institutional investors are holding historically low levels of cash. But Bank of America think that the withdrawal of liquidity by central banks will cause a “big fall” in markets, and soon – the bank predicts a market reversal before December.