To the scoreboard:
Dow: 21,029 -51 -0.24%
S&P 500: 2,413 -3 -0.12%
AUD/USD: 0.7461 +0.0021 (+0.28%)
ASX200 SPI futures (June contracts): 5,712 (-5)
Iron ore benchmark 62% fines: $US58.50 (no change)
1. US data on point: There were no major surprises in key US data overnight, with the personal consumption expenditure (PCE) core inflation index coming in at 0.2% for April as forecast. The CME Fedwatch tool now has the probability of a June rate hike at 88.8%, while stocks were little changed and still close to record highs. Interestingly the bond market continues to tell a different story. There was more demand for US treasuries overnight and the yield on US 10-years fell to 2.21%.
2. Playin’ it safe: In addition to US bonds, there was more of a lean to safer assets overnight as markets exercised a level of caution. German bonds saw demand after Germany’s April inflation data came in slightly weaker than expected. The US dollar fell back below 111 Japanese yen, and gold briefly hit $US1,270 an ounce before hitting resistance and closing around $US1,262 an ounce. It points to a slightly lower open for the ASX, after Aussie stocks made small gains yesterday.
3. A tale of two halves: The Euro was weaker against the greenback in Asian trade stemming from election uncertainty in Italy, doubts about Greek debt and comments from ECB president Mario Draghi which tempered inflation expectations for the Eurozone. However, it fought back above $US1.11 overnight and the USD index finished the overnight session lower. The AUD found buyers as soon as UK markets opened late yesterday, and stayed higher overnight to close the session at US74.6 cents.
4. Data today: Australia has private sector credit growth. Overnight the Eurozone has inflation and employment data. The main data point out of the US will be the Federal Reserve’s “Beige Book”. It’s a compilation of data released two weeks prior to each meeting on interest rate policy, and can provide clues as to the Fed’s thinking. There’s also weekly US oil inventories.
5. Oil flood: Oil prices came back under pressure, with benchmark crude down 0.9% to $US51.84 a barrel, while West Texas Intermediate fell 0.6%. The market is waiting for continued evidence that global stocks are reducing, while the overnight fall was due in part to renewed production in Libya. Business Insider’s David Scutt reported earlier this week that JP Morgan have lowered their 2018 forecasts for benchmark crude to $US45 a barrel.
6. China returns: Chinese markets reopen today after a two-day holiday, and global investors continue to watch with interest as the economy adjusts to the recent crackdown on credit growth and shadow banking practices. The Financial Times reports that the CSI 300 Banking Index fell 10% following the appointment of a new corporate regulator in February. The yield curve on Chinese bonds also inverted as Chinese banks sold shorter-term debt to raise liquidity, but as of this morning the yield on 5-year notes have fallen back below the 10-year.