To the scoreboard:
Dow: 21,012 +74 (+0.36%)
S&P 500: 2,404 +6 (+0.25%)
AUD/USD: 0.7500 +0.0021 (+0.28%)
ASX200 SPI futures (June contracts): 5,786 (+12)
Iron ore benchmark 62% fines: $US60.52 -$US1.48 (-2.39%)
1. Fed stays dead: The minutes from the US Federal Reserve’s May meeting were on the dovish side, and that drove stocks up with the S&P500 creeping to a new record high. The Fed said that it was likely to raise interest rates “soon”, and it outlined a plan to taper its bond buying program. The US dollar index fell by around 0.3% on the news and US 10-year treasuries fell by 3 basis points to 2.25%. The CME Group’s Fedwatch tool has the current probability of a June rate hike at 78.5%.
2. Aussie rallies: The AUD is proving resilient and is back over 75 cents this morning. It found buyers overnight after the Fed minutes, despite facing headwinds yesterday with poor construction data, the credit downgrade of China and falls in iron ore prices. The euro rose back above $US1.12, while the best performing currency was the Canadian dollar which was 0.8% against the greenback. The Canadian central bank kept interest rates on hold at 0.5% but investors considered the accompanying statement more hawkish:
3. OPEC day!: The oil market is poised ahead of OPEC’s meeting in Vienna tonight, with a 9-month extension to supply cuts the most likely outcome. Reuters reported that last night’s weekly drawdown in the US was higher than expected, and oil stocks in the US fell to their lowest level since mid-February. In a sign that demand in the US is picking up, oil refinery production (processing oil into gasoline) was at its second highest level ever last week.
4. Bitcoin $2,400: The crypto-currency surged past $US2,300 last night and kept going, trading a short time ago at $US2,465. The latest rise coincided with a statement by the Digital Currency Group in New York, which announced a bitcoin scaling agreement as the market for the currency continues go grow. $US100 invested in Bitcoin in July 2010 would be worth around $US2.6 million today.
5. Massacre in the bulks: Spot prices for benchmark 62% fines fell by 2.4% last night, after futures trading earlier in the day had the market looking particularly rocky. The Moody’s downgrade of China’s credit was a likely contributor and spot prices have now fallen more than 4% over the past two days. The current jitters in the market suggest that a fall below $US60 a tonne is looking more probable.
6. On China’s downgrade: Despite the downgrade getting considerable attention outside of China, the country’s bond market shrugged off the news. The Financial Times reports that after a brief surge, Chinese 5-year government bonds returned to their normal level. China’s bond market is dominated by domestic investors who more or less ignored the latest rating. Analysts said that Moody’s decision to hold the outlook at stable rather than negative should help China’s plans to continue integrating with the global economy, which will eventually open up the bond market to foreign investors.