Good morning and happy Friday.
To the scoreboard:
Dow: 20,6663 +15 (+0.07%)
S&P 500: 2,357 +4 (+0.19%)
ASX SPI200 Futures – June (20 minute delay): 5,864 +16
AUD/USD: 0.7543 -0.0023 -0.30%
Iron ore benchmark 62% fines: $US80.90 -$US0.64 (-0.78%%)
1. Holding pattern set to continue: With minimal fluctuations in US shares, government bonds or the US dollar overnight, the market is keenly anticipating two key Friday developments. First, Donald Trump meets with Xi Jinping and markets are wary about how trade discussions will go between the two leaders. Second, US non-farm payroll data comes out, with analysts forecasting an increase of 180,000 payrolls in March with unemployment steady at 4.7%. It all points to a quiet start for Australian and Asian markets, with the Aussie dollar treading water overnight and ASX futures up 16 points.
2. Data will move the markets: Currency traders will be looking closely at the wage growth figure within the non-farm payrolls report. Investing.com reports that if payrolls rise above forecast but underlying wage growth slows, the US dollar will still fall against the yen. The USD/CAN trade is also in play as Canada releases its March employment report on Friday. After a strong February reading, any softness is expected to drive the USD higher. The UK reports industrial production, house prices and its balance of trade on Friday could influence the pound’s strength against the USD, although US non-farm payroll will also factor heavily in that trade.
3. India central bank surprises markets: The Royal Bank of India (RBI) unexpectedly gave banks a higher return on money they deposit with it, raising the reverse repo rate by 25 basis points to 6%. It’s hoped that the move will encourage banks to hold more funds at the RBI, so that it can start withdrawing cash from the banking system that began accumulating when prime minister Nodi banned the circulation of larger currency notes in November. The RBI kept the benchmark bank repo rate steady at 6.25%
4. Iron ore set to fall: Rio Tinto and Fortescue – more closely aligned with iron ore than BHP – both fell by more than 1.5% yesterday and more pain could be in store today with iron ore futures looking ugly. The most actively traded contract (September 2017) crashed by 5.4% overnight to its lowest level since January 10. Trading in iron ore gets underway on the Dalian Commodity Exchange at 11am AEST.
5. Speculators influencing the oil price: The two major oil indices – benchmark crude and West Texas Intermediate (WTI) – both rose by more than 1% to reach the highest level in a month, when concerns about over supply started dragging the price lower. After yesterday’s unexpected increase in US inventories, the movements in price aren’t closely correlated to market fundamentals. That’s led some analysts to question whether speculators are back in the market, after oil positions were unwound over the last few weeks in response to the increased supply.
6. World’s largest investor says shares look pricey: Even the chief executive of the world’s largest asset manager thinks US shares have reached their ceiling. Larry Fink, the CEO of Blackrock which manages $US5.1 trillion, said current prices are overly reliant on tax reform and measures being passed through US parliament. Based on Fink’s rationale, and the complexity of the US tax code, the market will likely need to see a very strong earnings season from S&P 500 companies to justify current valuations.