Morning! Here’s what traders will be talking about before markets open.
To the scoreboard (8:15am AEDT):
Dow: 20,837 -44 (-0.21%)
S&P 500: 2,365 -8 (-0.34%)
SPI 200 Futures – March (20 minute delay): 5,752 -10 (-0.17%)
AUDUSD: 0.7558 +0.0002 (-0.03%)
1. All about the Fed: Trading volumes were light (partly due to a blizzard on the north east coast) and US stocks finished slightly lower on oil concerns and also because all is quiet ahead of Wednesday’s interest rate announcement by the US Federal Reserve. Forecasts range from a further 2 to as many as 4 more rate hikes in 2017, so traders will be focused on the wording of the Fed’s statement to gauge the likely extent of further tightening. Low volatility is still the order of the day as the Dow hasn’t lost more than 1% for 104 days, the longest such streak in over 20 years. Yields on US 10-year notes also hardly moved ahead of the Fed’s announcement, dropping fractionally but remaining at 2.6%.
2. Data today: Australia has the Westpac Consumer Confidence Index at 11:30 am AEDT. The US has inflationary data out tonight, with February figures for the Consumer Price Index and Retail Sales. The weekly EIA Petroleum Status Report will also go out ahead of the interest rate announcement by the US Fed, scheduled for 5am tomorrow (AEDT). In Europe, the dutch election gets underway this evening at 5:30pm, with the result expected at around 7am tomorrow morning.
3. Oil slide continues: Oil posted its sixth straight day of losses, as data released by OPEC showed that Saudi Arabia had increased supply despite a deal with other OPEC members to curb production. Benchmark crude almost slid below $50 before stabilising at $50.55. The price of West Texas Intermediate (WTI) crude fell a further 1.7% to $47.70. The oil price has now dropped below its 200-day moving average, and analysts are pricing in further down-side risks to oil in the short term due to the oversupply in US shale oil markets.
4. Iron ore – never a dull moment: Iron ore traded flat on Tuesday (benchmark 62% fines at about $88 per tonne), but futures surged again on more speculation. Zinc and copper saw minimal volatility overnight and gold traded flat at about $1,200 an ounce ahead of the US Fed announcement. Any signal from the Fed that it intends to hike rates quicker than expected will put downward short-term pressure on gold prices.
5. USD shows strength: The USD index was up 0.43% overnight (but weaker against the yen) ahead of the Fed’s announcement, as US producer prices (a measure of inflation) rose more than expected in February. The pound continued its recent trend lower, losing 0.53% to 1.215 against the greenback as traders locked in gains from a lower trading range, after the bill to trigger Brexit was passed leaving no major impediment for Britain to leave the EU. The Euro was down 0.50% against the USD on political concerns, with markets excercising caution ahead of the Dutch election.
6. Shiller joins the chorus: Add Robert Shiller to the list of experts who think stocks look overvalued. Shiller’s cyclically adjusted price earnings ratio (which measures a stock’s price against the past 10 years of earnings) for the US stock market reached 29.24 on Monday, the highest level since the dot-com bubble began to burst circa 2000. In Shiller’s view, the market has been overly optimistic about the Trump administration’s growth agenda, without due regard for the challenges of its implementation. Shiller said that he wouldn’t make a short term forecast about when stock will fall, but that he won’t be adding to his US stock positions.