Good morning and happy Friday. Here’s what traders will be talking about this morning.
First, the scoreboard (8:00am AEDT):
Dow: 20,854 -2 (-0.01%)
S&P 500: 2,365 +2 (+0.07%)
SPI 200 Futures – March (20 minute delay): 5,758 +8 (+0.14%)
AUDUSD: 0.7510 -0.0018 (-0.24%)
1. Oil crashing: US crude prices just dropped under $50 for the first time this year. With US inventories rising to a record 528.4 million barrels, West Texas crude lost another 3% to $US48.76 per barrel. The options market suggests the fall may be temporary once OPEC supply cuts take effect, as the most active trades for US crude in early afternoon trading were May call options at $50 and $55. The US supply glut coincides with the discovery of the largest American onshore oil deposit in 30 years.
2. Draghi looks ahead: The Euro is up by 0.46% against the greenback and German bond yields rose following comments by European Central Bank (ECB) president Mario Draghi. With headline inflation in the eurozone reaching 2% for the first time in four years, Draghi said he doesn’t expect that the bank will need to lower interest rates further. Investors are now looking for any clues as to when the bank will begin to scale back its bond purchasing program. The ECB upgraded its forecast for eurozone growth in 2017 from 1.3% to 1.7%, but will remain cautious until there is persistent growth in wages and underlying inflation.
3. Metals: Iron ore lost more ground as the price of benchmark 62% fines dipped 0.46% to $86.79 per tonne. After falling 8.5% from early February highs the market appears to be stabilizing, with the futures market pointing to a slightly higher open when trading re-starts. Gold, zinc and copper all lost more ground overnight as yields strengthened in other asset classes. US 10-year bonds increased by another 5 basis points to 2.6%.
4. Key data: In Australia, the ABS releases Housing Finance data which provides a summary of financing commitments made by significant lenders. Overnight the US will release its official jobs data for February. Analysts expect that US employers added around 200,000 employees to the payroll in February.
5. Bond market “bloodbath”: Societe Generale’s strategist Albert Edwards believes that the US has created a credit bubble which is at risk of bursting as the US Federal Reserve raises interest rates. Edwards, noted for his bearish views, wrote that if the Fed accelerated the pace of rate hikes this year it will cause long term rates to spike as markets feared the risk of increased inflation.
6. Bill Gross remains cautious: In his monthly investment report, Bill Gross said that structural imbalances in global credit has increased the risk of destabilization in markets. According to Gross, global credit relative to GDP is as high as it was before the 2008 crash, as central banks walk a fine line to generate credit growth which matches nominal GDP growth.