Good morning and happy Friday.
To the scoreboard:
Dow: 21,287.03 -167.58 (-0.78%)
S&P 500: 2,419.70 -20.99 (-0.86%)
AUD/USD: 0.7681 +0.0040 (+0.52%)
ASX200 SPI futures (Sept contracts): 5,710 (-67)
Iron ore benchmark 62% fines: $US64.71 (+3.8%)
1. Bond markets on the move: The yield on US 10-year notes rose 4 basis points to 2.27% overnight, as bond markets re-calibrate around the recent shift in tone to a more bullish stance by global central banks. With central banks in the UK, Europe and Canada increasingly raising the prospect of reduced monetary stimulus and more interest rate rises, global bond yields have moved sharply higher this week. 10-year bond rates in the UK and Australia both rose by around 10 basis points overnight, with Aussie 10-years now trading above 2.6%.
2. Stocks drop: Global share markets fell sharply overnight, with more gains in US financials unable to offset another sell-off in US tech stocks as the NASDAQ100 index lost 2%. The rise in bond yields added an element of skittishness to markets, as the withdrawal of central bank stimulus raises the prospect of more stock market volatility. SPI futures traders have marked down the local index heavily, with buying support only likely to come from fund managers topping up positions to close the financial year.
3. USD is still falling: The euro and pound continued to push higher overnight, above $US1.14 and $US1.30 respectively. Moves by other major central banks to catch up to the US Fed’s path to policy normalisation continues to weigh on the USD, despite some good data overnight for GDP and jobless claims. USD/YEN is the only major pairing for the greenback that’s finding support, as Japan’s central bank maintains its monetary stimulus measures. With the USD index now below 96, the Aussie has hitched along for the ride, with a break above US77 cents now in sight.
4.Iron ore is running with the bulls: Iron ore’s recent surge continues, as it joined the ride last night with futures traders pushing up prices for most commodities. That takes the gains for benchmark 62% fines over the last three days to almost 15%. Oil fell for the first time in six days, with Goldman Sachs downgrading their price target overnight. The bank expects prices to settle at around $US45 a barrel as the market absorbs the competing forces of increased shale production in North America and OPEC’s recent production cut extensions.
5. Gold not coming to the party: Despite a rise in global bond yields and some nervousness in stock markets gold prices remain relatively compressed. Current prices of around $US1,245 an ounce are the lowest since mid-May, with gold unable to rebound back above $US1,250 an ounce after it crashed earlier this week following a huge sell order.
6. Happy end of financial year: Today marks the close of FY17, with an interesting year ahead as the gradual close of an 8-year run of central bank stimulus is seemingly on the cards. While the global economy looks in reasonable shape and stocks in the US are at record highs, investors are still nervous. This post from The Wall Street Journal cites some interesting research from UBS, which says that stocks typically fall by more than 7% when the Federal Reserve raises rates in a quarter in which GDP growth is at its current levels.