Good morning. Here’s what traders will be talking about before markets open.
To the scoreboard:
Dow: 20,651 -6 (-0.03%)
S&P 500: 2,354 -4 (-0.14%)
ASX SPI200 Futures – June (20 minute delay): 5,936 +18
AUD/USD: 0.7495 -0.0001 -0.01%
Iron ore benchmark 62% fines: $US74.38 -$US1.07 (-0.44%)
1. Markets uneasy as geo-political tensions rise: Global markets hit a number of key risk-off benchmarks overnight, as concerns mounted over geo-political tensions in Syria and North Korea. USD/JPY hit a four-month low under 110 yen, US 10-year treasuries fell under 2.3% and gold jumped to a five-month high above $US1,275 an ounce. US equities traded flat on the lightest volumes so far in 2017. The prevailing sentiment has markets battening down the hatches – the VIX index (a measure of future volatility) spiked another 7% overnight to a reading of over 15, its highest level since the US election.
2. Can US earnings match the hype?: With political concerns driving capital into safer trades, the focus this week will turn to US corporate earnings season with three large US banks set to report this Thursday. The US market is trading at a price/earnings ratio of 17.52 times expected earnings over the next 12 months, its highest level since 2004. To justify those prices, earnings will need to show strong growth.
The Financial Times (FT) reports that analysts forecast an 8.8% yearly increase in first quarter earnings for the S&P 500, and that rises to 14.3% for the banks due to higher trading profits and more M&A activity. This chart from the FT shows how Q1 2017 earnings are expected to perform against last year.
3. Aussie stocks shows resilience: Despite global trading flows shifting to a hedge against more volatility, the ASX 200 is up 1.2% this week with this morning’s ASX 200 futures up another 18 points. The gains comes as iron ore continues to slide while the AUD did little in overnight trade. After yesterday’s strong NAB business report, more good data today could help the local index move towards 6,000. Westpac has its consumer sentiment index at 10:30am AEST. The ABS reports on overall lending finance for February, and has an update on December quarter building activity showing the level of construction for residential dwellings. Chinese inflation data at 11:30am AEST could also sway Asian markets.
4. OPEC confirms supply cuts: Reuters reports that the Organisation of Petroleum Exporting Countries (OPEC) advised that its member states have so far adhered to the 6-month supply cut agreement that’s been in effect since January 1. The agreement stated that OPEC countries would reduce oil output by 1.2 million barrels per day over that time. The cuts have contributed to a re-stabilisation of the oil price, with West Texas Intermediate (WTI) up 11% from March lows. The US Energy Information Agency (EIA) will release its weekly gauge of US oil inventories later tonight.
5. French election has a new twist: The French election is in 12 days and will no doubt be the key market-moving event for the European economy in the near term. A fourth candidate has just surged in the latest Ifop poll – far-left candidate Luc Melenchon, who’s policies include implementing a 100% tax on the rich. The poll also suggested that one third of french voters are still undecided, which increases uncertainty as the pool of candidates from which they can choose now represents the full spectrum of political extremes. The spread between French and German bond yields rose to the highest level in six weeks on the news.
6. There’s been a lending slow-down in the US: With US banks kicking off reporting season this week, it’s hoped the numbers can shed some light on a worrying decrease in US lending activity. The Wall Street Journal reports that total loans and leases from US banks grew by a yearly rate of 3.8% to the end of March, while business lending grew at just 2.8%. Healthy growth in business lending is seen as a key measure of a strong economy. This chart tells the story.