Good morning. Here’s what traders will be talking about before markets open.
To the scoreboard:
Dow: 20,648 -41 (-0.20%)
S&P 500: 2,353 -7 (-0.31%)
ASX SPI200 Futures – June (20 minute delay): 5,843 -16
AUD/USD: 0.7570 -0.0001 -0.01%
Iron ore benchmark 62% fines: $US81.54 +$US1.09 (+2.63%)
1. Fed minutes move the markets: The US Dow Index swung backwards more than 240 points after climbing by more than 1%, finishing lower following the release of the US Federal Reserve’s March meeting minutes. The minutes provided forward guidance that the Fed will look to reduce the size of its balance sheet later this year. Full text of the minutes is here. More on the Feds concern about the stock market is here.
2. Safe haven assets the order of the day: In addition to the Fed rattling markets, Reuters also reported that House speaker Paul Ryan said tax reform legislation will take longer to pass than the healthcare repeal bill. The Japanese yen strengthened (USD/YEN back under 111), treasuries rose and gold reached $US1,258 after earlier falling to $US1,244. Pressure remains on the Aussie dollar, with the AUD index down 0.15%. Global markets are now in a holding pattern awaiting the outcome of two key events – the meeting of Donald Trump and Chinese leader Xi Jinping and key non-farm US payroll data.
3. US crude stockpiles send oil lower: Analysts are having a hard time predicting movements in US oil inventories, as the US Energy Information Agency reported an increase of 1.6 million barrels last night against a predicted fall of 435,000 barrels. Reuters reported that the difference was caused by a rapid fall in US exports. Benchmark crude futures remained steady at $54.36 a barrel and analysts expect near-term demand to draw down global inventories with or without an extension of the OPEC supply cuts.
4. Bond yields lower despite hawkish Fed: Bond yields actually decreased today, despite the more hawkish sentiments in the US Fed’s meeting minutes centered around a future reduction in its balance sheet. The move was perhaps connected to other comments in the Fed minutes that the stock market looked expensive. This chart from investing.com shows the move in US 10-year bonds after the minutes were released.
5. Iron ore comes back from holidays with a bang: After a four-day weekend in China, iron ore jumped more than 2% as markets re-opened. Benchmark 62% fines followed coal higher as it rose for a third straight day due to supply disruptions from the Queensland cyclone. Although iron ore rises typically follow steel prices higher, spot rebar markets were subdued overnight on lingering concerns about oversupply.
6. Cautious markets reflected by a flatter yield curve: The spread between US 10-year treasuries and US 2-year treasuries (known as the 2-10 spread) decreased to its lowest level since the election last week, the Wall Street Journal reported. While the shorter term notes reflect the US Fed’s near term interest rate outlook, the 10-year note is an indicator of the market’s expectation for longer term growth and inflation. The recent decrease in 10-year yields has reduced the spread, causing the yield curve to flatten. That’s seen by some investors as an indicator that markets are overpriced.