To the scoreboard:
Dow: 20,950 +36 (+0.17%)
S&P 500: 2,391 +3 (+0.12%)
AUD/USD: 0.7533 -0.0003 -0.02%
ASX200 SPI futures (June contracts – 20 minute delay): 5,930 -4
Iron ore benchmark 62% fines: $US68.72 +$US0.72 (+1.04%)
1. Oil tanks again: Both Benchmark Crude ($US50.45) and West Texas Intermediate ($US47.64) fell by more than 2% overnight and are now approaching yearly lows. A Reuters survey showed that OPEC cut production for the fourth straight month in April. Compliance with January’s six-month agreement to reduce production was at 90% (down from 92% in March). There was some late buying of oil early this morning as the preliminary US inventory reports showed a stock draw-down, ahead of official EIA figures tomorrow.
2. US shares struggle for traction: US stocks were flat ahead of key data releases tomorrow, and that was before Apple’s earnings missed estimates after market close. The Euro STOXX Index closed up 0.75%, led by a 3.1% gain in Greece (more on that later) while the UK’s FTSE rose after April’s Manufacturing PMI hit the highest level in three years. The weak lead from the US means that capital is unlikely to move into Australian shares after financials led the index lower yesterday.
3. Data today: Australia has the Ai Group Services index, and New Zealand releases its quarterly employment data. Later tonight, Europe has Q1 GDP figures. The US has its ADP employment report, services PMIs, the weekly EIA oil inventory report and then the Federal Reserve’s interest rate announcement tomorrow morning. The Fed will hold in May but its comments tomorrow could shed light on its plans for June after softer GDP and inflation data in recent days. The likelihood of a rate hike next month is currently 70.4%.
4. Currency wrap: The AUD briefly moved above US75.5 cents yesterday following the RBA’s neutral interest rate statement, but quickly hit resistance and is back at US75.3 cents this morning. The US dollar is holding above 112 Japanese yen with tomorrow’s Fed meeting the key driver of whether it can stay there. Both the pound and the euro are steady against the US dollar, holding above $US1.29 and $US1.09 respectively.
If tonight’s GDP report is strong and Sunday’s run-off election in France proceeds as expected, the euro should strengthen further and markets will increase speculation that the European Central Bank will introduce concrete steps to reduce stimulus measures at its next policy meeting in June.
5. Greece gets another debt deal: Greece struck a deal with creditors overnight to receive the next disbursement from its 86-billion euro debt relief program, the Financial Times reports. The deal centred on insistence from the European Union and the International Monetary Fund to further cut Greece’s onerous public pensions, which have already been reduced by 40% since 2011. Greek 2-year bonds fell by 48 basis points to 5.93% on the news.
6. China credit risk continues to linger: It’s worth keeping an eye on China’s ongoing battle to reign in excessive credit. According to The Wall Street Journal, while the initial reaction on global markets has been minimal, the crackdown on credit could have a delayed effect on China’s economy. Chinese stocks fell last month as China’s regulators showed they are getting serious about curtailing cheap inter-bank loans and off-balance sheet shadow banking practices.