6 things Australian traders will be talking about this morning

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Good morning.

To the scoreboard:

Dow: 21,513.17 -66.90 (-0.31%)
S&P 500: 2,469.91 -2.63 (-0.11%)
AUD/USD: 0.7922 -0.0001 (-0.01%)
ASX200 SPI futures (Sept contracts): 5,638 (+13)
Iron ore benchmark 62% fines: $US67.86 (+1.7%)

1. It’s ridiculously quiet: The Aussie dollar remains elevated above US79 cents, with markets little changed to start the week ahead of key data tomorrow. The AUD edged higher with the CAD and the Kiwi, as commodity bloc currencies were supported by gains in iron ore, oil and gold. Preliminary data for composite June PMIs in the US beat expectations, coming in ahead of the UK and Europe which fell slightly. That helped push the greenback slightly higher despite a small miss in US home sales data, although the USD index remains around one-year lows.

2. US tech stocks break new ground: US stocks traded flat, although the tech-focused NASDAQ index climbed to a new record high. As Business Insider’s Joe Ciolli writes, the continued gains in US stocks this year can by partly attributed to the unexpected weakness in the US dollar. Stocks in the UK dipped by 1% as the stronger pound and a downgraded growth forecast by the IMF weighed on sentiment. Futures traders have marked the local index up after a rough session yesterday, with gains overnight in financials and commodities providing a good lead for the major sectors on the ASX200.


3. Bonds do nothing: There were no major moves ahead of the US interest rate decision on Wednesday. Greg McKenna from AxiTrader pointed out this morning that it’s worth keeping an eye on the short end of the US yield curve, with the yield on 3-month bonds now higher than 6-month notes. That suggests that markets are concerned that political turmoil in Washington will delay the passage of the next piece of legislation to extend the US government debt ceiling. Aussie 10-year bonds fluctuated overnight, falling by 6 basis points before climbing back above 2.7%.


4. It’s about to blow up: One investor has made up their mind about the record low levels of volatility in US stocks — it’s not going to last. The VIX index — a measure of volatility in US stocks — consistently trades below 10 these days, which it hasn’t done since 1993. MarketWatch reported this morning that a huge deal for 1 million VIX option contracts took place on Friday, with the trader betting that the VIX will rise to 25 by October. If the trade comes off, the unknown investor stands to make around $US265 million.

5. Solid night for commodities: Iron ore found some buyers overnight after two straight days off losses, with benchmark 62% fines finding recent support around $US70 a tonne. Benchmark crude oil gained 1.1% to $US48.60 a barrel, following an OPEC meeting in Russia in which Saudi Arabia announced a drop in exports and OPEC said it would cap Nigerian production, according to Reuters. The continued weakness in the US dollar is helping to support gold above $US1,250 an ounce.

6. Hike too fast and we’ll get a crash: With last Tuesday’s minutes from the RBAs interest rate meeting considered as being more hawkish in nature, markets moved their pricing of the next interest rate rise in Australia forward to the middle of next year. But economist George Tharenou from UBS wrote yesterday that if the RBA hikes rates too early it could still cause a housing crash, given the level of household debt and the fact that house prices are growing 4-5 times faster than incomes.

Enjoy your Tuesday, you can find me on Twitter here.

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