Good morning. Here’s what traders will be talking about to start the week.
To the scoreboard:
Dow: 20,656 -7 (-0.03%)
S&P 500: 2,355 -2 (-0.08%)
ASX SPI200 Futures – June (20 minute delay): 5,866 +14
AUD/USD: 0.7493 -0.0002 -0.03%
Iron ore benchmark 62% fines: $US75.45 -$US80.55 (-6.76%)
1. Traders shrug off bad news: The ASX 200 should open higher and pressure will remain on the AUD as global markets stabilised on Friday in the wake of the US missile attack on Syria. Despite a weaker than expected jobs report, the S&P 500 and the USD were both steady and traded within a narrow range as US president Donald Trump’s diplomatic meeting with Chinese president Xi ran smoothly. US earnings season kicks off this week, with yearly earnings growth for the first quarter estimated at 9.9% (down from 10.57% a month ago).
2. Market-moving data this week: The Australian Bureau of Statistics (ABS) has February data (pre the latest restrictions by APRA) for housing finance today at 11:30am AEST. US Fed chair Janet Yellen will participate in a policy discussion later today at the University of Michigan.
3. Iron ore digs in its heels: Iron ore had its worst day in over a year on Friday, when the price of benchmark 62% fines crashed by 6.76% to $75.45 per tonne. With steel rebar futures falling, the iron ore price fell further as traders stalled their buying in anticipation of more losses. Despite the drop, iron ore futures closed up off their lows on Friday which suggests that prices will stabilise for now in the mid-$70 range, or even climb as traders get back into the market off a lower base.
4. Aussie dollar hits 3-month low: The AUD is trading under US75 cents this morning, after briefly falling below early-March lows. Although the currency continues to face headwinds from a move towards risk-off appetite in global markets and the falling iron ore price, there shouldn’t be any immediate further pressure on the currency in early trade.
5. Global bond demand remains high: With yield-hungry markets concerned about elevated stock valuations, bond issues saw high demand in the first quarter of 2017, the Wall Street Journal reported. Emerging market companies and governments sold $178.5 billion of US dollar debt in the first quarter, while high-grade corporate debt in the US reached $US414 billion. Both numbers were a record high.
6. Be wary of low volatility: With US stocks at record highs, the market has seen minimal volatility so far in 2017. This chart from the Financial Times shows the forward 12-month price-to-earnings ratio of the S&P 500, divided by the VIX index of implied volatility. You can see that the last time it was this high was just prior to the global financial crisis: