To the scoreboard:
Dow: 21,310.66 -98.89 (-0.46%)
S&P 500: 2,419.38 -19.69 (-0.81%)
AUD/USD: 0.7581 -0.0001 (-0.01%)
ASX200 SPI futures (Sept contracts): 5,642 (-12)
Iron ore benchmark 62% fines: $US59.70 (+5.2%)
1. Draghi comes to the party: European Central Bank (ECB) president Mario Draghi delivered a relatively upbeat assessment of the Eurozone economy overnight, fuelling speculation that the ECB may move to start tapering its asset purchase program at its next policy meeting in September. Traders jumped on the good news, driving the Euro above $US1.13 — its highest level since August last year.
2. AUD can’t hold on: It was an interesting night for the Aussie dollar, which rose above US76 cents in Asian trade, then fell in the wake of Draghi’s comments. While a move lower against the Euro was understandable, the Aussie also fell against the greenback as currency traders moved capital into more profitable trades. The US dollar was also lower against the pound, which rose above $US1.28 on comments from Bank of England Governor Mark Carney which hinted at tightening monetary policy.
3. US Fed holds its ground: Draghi’s speech also helped to drive bond yields in the US and Europe higher, while more members of the US Federal Reserve also weighed in overnight. Fed chair Janet Yellen didn’t give much away, but committee members John Williams (speaking in Australia) and Stanley Fischer both noted that markets should be prepared for a fall in US stocks, indicating that the Fed plans to continue on its path to normalisation. US 10-year bond yields climbed almost 7 basis point back above 2.2%.
4. Big night for commodities: Downside momentum in oil has subsided for the time being, with Reuters reporting that benchmark prices rose another 1.8% on a weaker US dollar and traders covering short positions. After finding a floor in the mid-$US50 a tonne range, iron ore ripped higher overnight on the return from the Chinese holiday as benchmark 62% fines jumped more than 5% on higher steel prices.
5. Rough night on share markets: Global stocks were sold off overnight, led by falls in the big US tech stocks as the NASDAQ lost more than 1.3%. The Fed’s plans to stay on its path to normalise monetary policy would’ve helped dampen enthusiasm, also impacted by political gridlock in Washington and a global cyber-attack. It sets up an interesting day on the ASX, with strength in commodity prices offset by a weak lead from global markets.
6. It’s not just markets that are complacent: While selling overnight saw a small jump in the S&P500 VIX index, it’s still trading near record lows. But the era of central bank stimulus has also ushered in a period of relative calm in the broader economy.This post from the Wall Street Journal shows that swings in quarterly US GDP figures are near their lowest level in history, while global GDP volatility is also at a record low.
Find me on Twitter @Mr_SamJacobs.