It was an interesting session overnight. On Wall Street, the tech sell-off seems to have abated some and stocks managed to put in a decent session. Not quite offsetting losses of the previous session, but the sell-off doesn’t look as bad now.
Again there wasn’t too much in the way of a major catalyst. Tensions in Ukraine are rising obviously, and that’s why European stocks closed lower. On the flipside economic data was great -- US job openings hit a six-year high in February. That may have helped to draw investor attention away from stretched valuations. The US dollar on the other hand came under pressure.
The International Monetary Fund’s latest report on the global economy may also have helped here. Overall, they seem to be more relaxed on global growth. They now suggest the chance of a recession this year is close to zero, having placed it at 6 per cent or so earlier in the year. In terms of their expectations for growth, they were little changed, with world growth expected at 3.6 per cent this year and 3.9 per cent in 2015. It is notable that US growth is expected above trend in both of those years.
Equities pushed higher in the US, the S&P500 rose 0.4 per cent (1851), the Dow was up 10 points (16,256), while the Nasdaq rose 0.8 per cent (4112). In Europe, equities were weaker as a result of rising tensions in Ukraine. The Dax was off 0.2 per cent, the CaC down 0.3 per cent and the FTSE100 off 0.5 per cent.
Forex markets drove the US dollar down overnight. Rising expectations of a European Central Bank QE program and strong data out of Britain conspired to see the currency weaken. The Australian dollar meanwhile got caught up in the crossfire and pushed decisively above 0.93 cents overnight. At the time of writing, the unit was sitting at 0.9361, which is about 37 pips higher than at 1630 AEST yesterday. The euro saw some buying action as well, up about 55 pips to 1.3794. The British pound was the key outperformer, shooting up 128 pips on stronger-than-expected industrial production data. As I write, the unit sits at 1.6743. The yen is down to 101.75 from 102.88.
Commodities pushed higher, crude especially, with WTI up 2.1 per cent to $102.5 while Brent spiked 1.4 per cent to $107.5. There’s talk in the market that inventories fell or some such. In the metals space, gold rose $9.8 to $1307, silver gained 0.6 per cent, while copper put on another 0.5 per cent.
Rates saw more buying action despite decent gains in the equity and commodity space. Largely this is due to strong demand for a 3-year Treasury note auction -- the strongest demand in 14 months. However, dovish comments from the Minneapolis Fed president, who said that the Fed should provide more stimulus to the US economy given inflation is so low and doesn’t look to be moving higher, weighed. Similarly, the Chicago Fed President, Charles Evans, noted there were dangers in withdrawing stimulus too soon. Moves weren’t huge though -- US Treasury yields were down about 2 bps on the 10-year to 2.682 per cent, while the 5-year was down about 3 bps to 1.659 per cent. The 2-year yield sits at 0.38 per cent. Aussie futures were up 1-2 ticks each to 96.97 and 95.925 on the threes and the tens, respectively.
Elsewhere, industrial production surged in Britain, rising by 0.9 per cent in February after a flat outcome the month prior. In the US, the number of jobs opening rose in February hitting a six-year high. Job openings rose nearly 300,000 in the month to 4.17 million.
In markets today, the SPI points to a 0.5 per cent gain for the All Ords today. Otherwise, the two key releases for Australia will be Westpac’s consumer confidence survey at 1030 AEST followed by home loans data at 1130 AEST. That’s largely it for our region. So looking further abroad, the key dataflow includes German and British trade data, while in the US we see the FOMC minutes (0400 AEST Thursday) and wholesale trade figures.
Have a great day…
Adam Carr is a leading market economist.
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