Morning! Here’s what traders will be talking about today.
To the scoreboard (8:15am AEDT):
Dow: 20,906 -9 (-0.04%)
S&P 500: 2,374 -4 (-0.19%)
ASX SPI200 Futures – March (20 minute delay): 5,774 -5 (-0.08%)
AUD/USD: 0.7730 +0.0032 (+0.42%)
Iron ore benchmark 62% fines: $US91.49 -$US0.87 (-0.92%)
1. Markets continue to tread water: US shares dipped slightly and treasuries rose in the fallout from last week, when the Federal Reserve raised rates but offered a less hawkish forecast. Risk appetite was also reduced following tense negotiations at the G20 summit on the weekend about the future of global trade. The US dollar continued its retreat, as Chicago Fed president Charles Evans repeated the view overnight that the Fed was likely to raise rates twice more this year. The Aussie dollar is still trading above its recent ceiling of US77 cents, as traders continue to revise their positions following the US Fed announcement last week. The pound briefly hit $US1.24 but dropped to $1.235 after a spokesman for prime minister Theresa May announced that the UK will trigger Brexit on March 29.
2. Data today: Australia has house price data from the ABS (11:30am AEDT). Also at 11:30am AEDT the Reserve Bank of Australia releases its latest meeting minutes. Later tonight (11:30pm AEDT) the US has its current account deficit data for Q4 2016. The UK reports retail sales and yearly Consumer Price Index (CPI) data for February (both at 8:30pm AEDT), with the consensus forecast for a 2.1% rate of inflation.
3. Oil extends losses, tough negotiations ahead: Oil dropped again overnight, with West Texas crude index losing 0.73% on lingering concerns about oversupply of US shale. Oil may face continuing pressure as hedge funds continue to unwind their bullish bets on prices. Net long positions reached a peak of 951 million barrels on February 21 and have since been unwinding, contributing to a more than 10% fall in oil prices. Amid growing concern around lower prices, OPEC may choose to extend its supply cuts from November last year beyond the original time frame of six months. The next OPEC policy meeting for determining oil output is in Vienna, Austria on May 25.
4. Junk bond exodus: Investors pulled cash from high yielding corporate debt last week, with the highest outflows of capital recorded in the sector since June 2014. With the US Federal Reserve raising rates last week and scheduled to raise twice more this year, the yield premium between riskier corporate bonds and safer debt investments has narrowed. Unless the yield spread on junk bonds widens significantly, yield hungry investors are likely to move capital into safer debt such as US Treasuries and emerging market bonds.
5. Is the boom in ETFs causing a bubble?: As Exchange Traded Funds (ETFs) gain market share to the tune of trillions of dollars, some investors are concerned that the flow of capital is exacerbating a US stock market bubble. A record $US131 billion poured into ETFs in the first two months of 2017 after the funds gained $US390 billion of capital in 2016. The industry got another boost after the election of Donald Trump, as optimistic investors piled money into ETFs as a simple way to gain exposure to the US stock market. Adding to risks in the sector is that capital in ETFs can be quickly retracted, which could lead to equally dramatic outflows if the US stock market under performs.
6. Traders gang up on Snapchat: Traders are aggressively shorting stock in Snap Inc. (parent company of Snapchat), with short interest climbing to over 30 million shares, or 15.4% of the company. After listing at $17 per share, the price climbed to $28.84 but is now trading at just under $20. Doubts remain among analysts about how effectively Snap Inc. can monetise its platform. Although user growth is slowing, Snap Inc. is aiming to convince investors that it can grow revenue through higher user engagement.