Good morning and happy Friday.
To the scoreboard:
Dow: 21,796.55 +85.54 (+0.39%)
S&P 500: 2,475.42 -2.41 (-0.10%)
AUD/USD: 0.7965 -0.0002 (-0.02%)
ASX200 SPI futures (Sept contracts): 5,718 (-2)
Iron ore benchmark 62% fines: $US70.20 (-0.33%)
1. USD bounces back: The greenback finally reversed course overnight, helped by good data prints for durable goods and international trade. That’s improved the prospects for a solid Q2 GDP figure in the US later tonight, so the bears have taken their foot off the pedal for now. The USD gained ground against all the major currencies, with the euro easing off its 2-year and falling back below $US1.17.
2. Bond yields higher: The yield on benchmark US 10-year bonds moved back above 2.3%, and yields rose for both US and Australian government bonds across the curve. US inventory data was also strong last night, doubling estimates with a 0.6% gain. That can be good or bad – either stock isn’t moving or companies are preparing for growth, but when factored into GDP modelling its boosted the forecast for tonight’s GDP print. The Atlanta Federal Reserve GDP tracker upped its Q2 growth forecast by 30 basis points to 2.8%.
3. Aussie takes a hit: The Aussie dollar’s stay above US80 cents was brief, as it fell almost a full cent from yesterday’s high overnight – a fall of 0.87%. The main data point on the domestic front today is producer price inflation figures scheduled for 11:30am AEST. Regionally, Japan has inflation data, retail sales and employment figures. Later tonight in Europe there’s German CPI and Eurozone consumer confidence. In addition to the GDP print, the US also has the Michigan consumer confidence survey for July.
4. More strong earnings but stocks are mixed: US stocks traded flat, although the tech-focused NASDAQ index had some late selling to fall by 0.7% and the volatility index climbed back over 10 (still very low). But Facebook beat earnings estimates again – racking up a lazy $US9.32 billion in revenue in the June quarter alone. With stocks still trading around record highs, billionaire Howard Marks asked what’s becoming a common question in his note to client yesterday – what happens when the liquidity dries up? ASX200 futures are pointing lower this morning, with the local index likely to trade within its recent range of 5,650 to 5,800.
5. Uncharted territory: This is interesting from Byron Wein, vice chairman for private wealth at huge fund manager Blackstone. Wein notes the recent divergence between growth in US stocks and the size of the US Federal Reserve’s balance sheet. Wein said the amount of central bank liquidity is “receiving inadequate attention”. With the Fed pumping all that money into the system, three quarters has gone into financial assets (like stocks) while only one quarter has been invested in the real economy. Here’s the chart:
6. Oil’s bullish run continues: Iron ore benchmark 62% fines slipped but are still holding just above $US70 a tonne, as bad weather halted Chinese steel production. Oil continued its recent rally, as benchmark crude closed 1% higher at $US51.39 a barrel. The stronger US dollar moved gold off its 6-week high back below $US1,260 an ounce.
Friday bonus: Amazon’s earnings missed expectations overnight, but we doubt Jeff Bezos is too upset – he briefly overtook Bill Gates as the richest person in the world.
Enjoy your weekend, I’m on Twitter @Mr_SamJacobs.