6 things Australian traders will be talking about this morning

Traders on the floor of the NYSE cheer (Photo by Porter Gifford/Liaison)

Good morning.

Here’s the scoreboard:

Dow: 21,328.47 +92.80 (0.44%)
S&P 500: 2,440.35 +10.96 (+0.45%)
AUD/USD: 0.7534 -0.0004 (-0.05%)
ASX200 SPI futures (June contracts): 5,736 (+118)
Iron ore benchmark 62% fines: $US53.36/t (-2.75%)

1. Britain has an “open door” to cancel Brexit: To add to the uncertainty out there, a leading member of the German government says Britain would be welcomed with “open doors” if it decides to reverse its plans to leave the EU. German finance minister Wolfgang Schaeuble told Bloomberg that while it was “up to the British government to take their own decisions,” Germany would not stand in the way of the UK returning to the union. If that idea picks up momentum, pay close attention to volatility, currencies and other risk assets.

2. Fed kicks off meeting: US interest rate markets are fully priced for a hike, taking Fed funds target up to 1.00-1.25%. Markets aren’t yet fully pricing in another hike for this year. Thereafter the Fed’s dot points and market pricing clearly diverge. The Fed’s median for the end of 2018 requires three more to 2.00-2.25% against market pricing of just over 1.5%. Other things to watch will include the statements on running down the Fed’s balance sheet and the extent of views on recent softer inflation and wages.  

3. Australia today: The ASX is poised for a stronger open as US stocks snapped a two-day slide to close at fresh records with technology shares rebounding from the worst drop of the year. The benchmark index bagged its best daily performance in seven months on Tuesday, as investors cherry-picked sold off bank stocks. Tumbling iron ore prices may keep a lid on ASX though. Data releases includes the Westpac Consumer Sentiment, Chinese industrial production, German CPI, UK Unemployment rate, US CPI and US Retail sales.

4. Iron ore back to 11-month low: Iron ore continues to tumble, falling to a fresh 11-month low on Tuesday on the back of renewed weakness in Chinese steel prices. Futures remaining under pressure overnight with little evidence to suggest that lower prices are prompting renewed demand from buyers. According to Metal Bulletin, the spot price for benchmark 62% fines slumped 2.75% to $53.36 a tonne, extending its decline from the multi-year high of $94.86 a tonne struck on February 21 this year to 43.7%.

5. DoubleLine Capital’s Jeff Gundlach held a live presentation on markets and the economy, titled “Small Change.”

The big takeaways included:

  • The low volatility environment should not be seen as a “new paradigm” for the market.
  • The 10-year yield is not likely to rise to 3% this year, but could top its March high near 2.575%.
  • Traders and speculators in the stock market should be raising cash today. Long-term investors, however, should be able to weather a pullback in stocks.

6. A digital cryptocurrency for marijuana is soaring: A digital currency for the legal marijuana industry is soaring after it sponsored Dennis Rodman’s trip to North Korea. Potcoin is a digital cryptocurrency — much like bitcoin — that was specifically developed to remove the need for cash transactions between marijuana consumers and dispensaries. If Potcoin was going for publicity, it certainly paid off: Potcoin’s value soared almost 97% to over 18 US cents on Tuesday. Rodman was photographed wearing a Potcoin T-shirt as he arrived in North Korea.

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