To the scoreboard:
Dow: 21,394.76 -2.53 (-0.01%)
S&P 500: 2,438.30 +3.80 (+0.16%)
AUD/USD: 0.7567 -0.0001 (-0.01%)
ASX200 SPI futures (Sept contracts): 5,662 (+3)
Iron ore benchmark 62% fines: $US56.75/t (+0.39%)
1. Quiet start to the week: European stocks were lower while US markets nudged ahead on a boost from bank stocks, which were up after passing the US Federal Reserve’s stress tests. With no major lead from global markets and a quiet week of data ahead, ASX200 futures are little changed so it will be an interesting start to the week after Friday’s modest gains, with recent sentiment towards Australian stocks less than stellar.
2. But the AUD is looking buoyant: The Australian dollar found buyers on Friday, benefiting from broad US dollar weakness, with political gridlock in Washington placing more doubts on the Trump administration’s ability to implement its pro-growth agenda. Perhaps assisting the Aussie somewhat is that iron ore has continued to see support in the mid-$US50 a tonne range, despite more weakness in steel prices.
3. The US battler?: Friday’s movements were consistent with a recent theme in which the US dollar continues to face headwinds. The USD index is hovering above 97, but is lower this morning against most major currencies. Recent data misses have sent Citi’s Economic Surprise Index (ESI) for the US economy to another low. While US stocks and the ESI have completely diverged, the correlation with the currency is stronger and that’s helping to act as a drag on the USD (chart courtesy of Greg McKenna at AxiTrader):
4. Bankers can’t agree: The recent weakness in macro indicators has left central bankers split in their views on how best to proceed with monetary policy. US Federal Reserve chair Janet Yellen thinks that the Fed should continue on its path to normalisation, but the Wall Street Journal reports that other Fed committee members are concerned about low inflation. It’s a similar story at the Bank of England (BOE), where outgoing member Kristine Forbes criticised the current environment of easy monetary policy, while BOE Governor Mark Carney prefers a more dovish stance.
5: Oil looks for a floor: Benchmark crude fought back above $US45 a barrel on Friday, but was still 4% lower for the week. This post from BI’s Akin Oyedele gives a good summary of the current threats to global oil demand, while in the US supply continues to grow as rig counts rose for the 23rd straight week. With prices facing near-term downside pressure if long positions are unwound, key trend-line support is currently in the low $US40 a barrel range.
6. Something has to give: In its Annual Report released yesterday. the Bank of International Settlements (BIS) highlighted the risks faced by Australia from high levels of household debt. Known as the central bankers’ central bank, the BIS said that Australia’s high leverage leaves it more susceptible to a shift in global interest rate cycles, according to the Financial Review. The effect of high mortgage costs are already being felt in the domestic economy, with a drop in the savings rate caused by increased debt repayments with low wage growth.
I’m Sam Jacobs and you can find me on Twitter @Mr_SamJacobs.