To the scoreboard:
Dow: 20,913 -27 (-0.13%)
S&P 500: 2,388 +4 (+0.17%)
AUD/USD: 0.7528 +0.0002 +0.03%
ASX200 SPI futures (June contracts – 20 minute delay): 5,945 +9
Iron ore benchmark 62% fines: $US68.00 -$US0.80 (-1.2%)
1. Bulls are in control: With European markets closed overnight, US tech stocks rallied again and the NASDAQ hit another new high as earnings season rolls on. 73% of S&P 500 companies have exceeded earnings expectations so far. There was minimal reaction to a below-forecast reading of the ISM Manufacturing Index, and the market shrugged off comments by Donald Trump that he was considering breaking up the banks.
ASX200 futures are up as US 10-years rose back above 2.3%, the US dollar hit almost 112 against the yen and gold fell back below $US1,260 per ounce. In a sign that the bulls are in control, the CBOE Volatility Index (VIX) – a measure of US stock volatility – is now at a 10-year low of 10.11 after falling more than 25% since the French election result.
2. Speaking of which…: Remember 50 Cent? The mysterious trader made $US89 million worth of bets that the VIX would rise – using mainly 50c futures contracts – which subsequently expired worthless. With the VIX at a 10-year low, the price of contracts for a movement above 14 with a 13-day expiry are now the cheapest since 2014. As for “50 Cent”, they have 450,000 VIX calls expiring in May and are now moving money into July and August contracts.
3. Data today: The Reserve Bank of Australia (RBA) announces its monetary policy decision at 2:30pm AEST, with benchmark rates expected to stay at 1.5%. The accompanying statement to last month’s interest rate announcement was noticeabley more dovish than March, and with consensus now that if rates do move it will be to the downside, traders will be closely analysing Governor Lowe’s comments on wage growth and house prices for any clues to the bank’s 2017 outlook.
4. Aussie dollar finds some buyers: Perhaps in keeping with the risk-on sentiment in global markets, the Aussie gained around 0.5% against the USD in North American trading. Immediate pressure on the AUD from a fall in iron ore has been reduced, with spot prices for benchmark 62% fines falling slightly last night but holding steady at $US68 per tonne. The AUD saw its biggest gains against the pound, with AUD/GBP rising by 1% as traders focused on a reportedly disastrous Brexit meeting between UK Prime Minister Theresa May and EU President Jean-Claude Juncker:
5. Oil stays on the slide: Oil prices are still looking for a floor, with Reuters reporting that Benchmark crude ($US51.52 per barrel) and West Texas Intermediate ($US48.84 per barrel) both fell by around 1%. Inventories in the US remain high, and Libyan authorities reported overnight that daily production is now 760,000 barrels – its highest level since 2014. In a sign of increasing competition from US producers, Saudi Arabia announced that it was dropping prices for oil exports to Asia to a nine-month low.
6. El-Erian highlights market contradictions: Mohamed El-Erian, the chief economic adviser for insurer Allianz, said in a speech overnight that contradictions still exist between stock market optimism and geo-political risks. El-Erian advocated for the US Fed to continue normalising rates with another two rate hikes this year, and he hopes for continued strength in the European economy which will allow the Euro to balance strength against the US dollar.