To the scoreboard:
Dow: 21,206 +62 (+0.29%)
S&P 500: 2,439 +9 (+0.37%)
AUD/USD: 0.7439 -0.0004 (-0.03%)
ASX200 SPI futures (June contracts): 5,798 (+10)
Iron ore benchmark 62% fines: $US57.79/t +$US1.82 (+3.25%)
1. US employment shocker: US employment data came in well short of forecasts on Friday. Although the unemployment rate dropped to 4.3% with people leaving the workforce, labour force participation fell slightly while wage growth held steady. That didn’t stop the S&P500 from climbing to a new record high with tech stocks leading the way. For bond and currency traders however, it raised questions about whether or not the US Fed will continue with its plans to tighten monetary policy later in the year.
2. Storm clouds ahead?: US treasuries saw significant demand in the wake of the employment data. Yields on 10-year notes fell by 6 basis points, and that drove the US dollar index down by 0.5% to 96.72. The probability of a June rate increase in the US remains above 90%, but the yield spread between US 2-year and 10-year treasuries is now the lowest since early October which suggests that the bond market is forecasting economic headwinds further down the track.
3. Key data: It’s a huge week in Australia, led by the RBA meeting tomorrow and Q1 GDP on Wednesday. Today there’s the Ai Group services industry performance index, Melbourne Institute monthly inflation, ANZ job ads and Q1 company gross profits. Monthly services PMI data will be released globally, with data from Asia will coming in throughout the day.
4. Mixed bag for commodities: Iron ore finally caught a bid at the end of last week, although the gains were likely due to speculators locking in profits from the recent price falls rather than a sustained shift in market fundamentals. The oil market remains in a state of flux, as OPEC tries to keep a floor under prices as production in the US continues to grow. The Saudi energy minister said OPEC would meet in July to review whether the latest extension to supply cuts will be sufficient.
5. Today’s Aussie outlook: ASX traders have marked the local index up today following the lead from US markets on Friday. Despite doubts around economic growth, the local market could still benefit in short-term trade from the general uptrend in global stocks. The AUD hitched a ride Friday on the back of general USD weakness, and is back over US74 cents this morning. The currency is likely to trade in a narrow range pending the big data releases later this week.
6. Tech bubble 2.0? While the rest of the S&P500 has only grown by 5% this year, tech stocks have roared ahead by more than 20%. Tech stocks now make up more than 23% of the index, and that’s not including Amazon, which isn’t classified as such. By some measures, valuations look similar to the dot-com bubble. However, the Financial Times reports that the consensus among fund managers is that valuations are justified this time, largely because of the current and projected earnings power of the big tech companies.