Investor risk appetite roared back to life overnight, resulting in big reversals of the moves seen in crude oil, gold and stocks in Asia on Wednesday. After posting modest declines yesterday, SPI futures point to strong gains for the local market today.
1. US and Iran tensions remains big issue: The financial media continued to be dominated by US and Iran tensions yesterday. Global markets were sent into a tizz upon the release of news that Iran, in retaliation to the assassination of one of its top General’s, Qassem Soleimani, had attacked two US military bases in Iraq. The gut reaction from traders was ostensibly one of total risk-off: Asian equity markets and US futures tumbles, gold hit fresh 7-year highs, and oil prices climbed by as much as 5 per cent.
2. Markets welcome measured response: The panic in markets proved short-lived, however, after both the US and Iran signalled their desire to avoid all-out warfare. The Iranians stated that the strikes were a “proportionate” response to the killing of Soleimani, and did not seek further conflict. And citing that there were no casualties amongst US military personnel, US President Trump tweeted that “all is well”, and in a speech delivered overnight, stated the US’s response to yesterday’s attack will be to apply greater sanctions on Iran.
3. A relief rally: Market participants welcomed the measured response from both the US and Iran. Oil prices unwound all of the gains sustained in the Asian during US trade. Bond yields have climbed, gold prices fell over 1 per cent, and the Japanese fell across the board, as traders exited their safe haven trades. European stocks edged higher, while the S&P500 added nearly 0.9 per cent. And after shedding 0.1 per cent on Wednesday, the ASX is expected to open nearly 70 points higher today.
4. Boeing share’s smacked by latest disaster: One company’s stock that was a major underperformer in the US session was that of Boeing. It tumbled by over 1 per cent in the Wall Street session, off the back of news another of its aircraft had crashed yesterday – incidentally, in Iran – reportedly due to a major technical fault just after take-off. It follows several other similar disasters in recent years, which has rocked the company, and seen its stock price fall by over 23 per cent in the past 12 months.
5. US jobs numbers boosts bullishness: US economic data proved strong last night. The ADP Non-Farm Employment report beat expectations considerably, suggesting the US economy added 202k jobs last month, against a forecast 160k. The news supported a broad-based lift in the USD, as trader’s maintained their view that the US economy remains in a relatively strong position. The data prefaces tomorrow night’s key US Non-Farm Payrolls numbers, which is estimated to show that the US economy added a far more modest 150k jobs last month.
6. Australian Building Approvals data beats: Australian economic data also printed better than expected yesterday. Local Buildings Approvals data exceeded expectations, showing that approvals expanded by 11.8 per cent, against an estimated 2.1 per cent. The figures contributed to hopes that the broad downturn construction activity in Australia may be subsiding. It will be a relatively busy day for Australian data to finish the week. Trade Balance figures are released at 11.30 this morning. And crucial Retail Sales figures for November are released tomorrow.
7. US Crude Inventory data misses: US Crude Oil inventory data was released during US trade, and though it’s impact paled into insignificance to yesterday’s events in the Middle East, it likely added to the soft day’s trade for oil. US crude inventories were shown to have expanded by 1.2 million barrels last week, against a projected -3.4m barrel drawdown. The data cast minor doubts that the global energy demand is lifting, and that a global economic recovery is beginning to take flight.
8. Market Wrap
ASX futures were up 58 points, or 0.9 per cent, to 6812 at 7.45am AEDT.
- AUD flat at 68.71 US cents (Overnight low 68.49)
- On Wall St near 2.50pm: Dow +0.8% S&P 500 +0.7% Nasdaq +0.9%
- In New York: BHP +0.6% Rio +1.4% Atlassian +2.2% Apple +1.5%
- In Europe: Stoxx 50 +0.4% FTSE flat CAC +0.3% DAX +0.7%
- Nikkei 225 futures +1.8%
- Spot gold -1% to $US1559.49 / oz at 1.31pm New York
- Brent crude -4.4% to $US65.26 a barrel
- US oil -5.1% to $US59.49 a barrel
- Iron ore +1.2% to $US96.22 a tonne
- Dalian iron ore -0.4% to 674.5 yuan
- LME aluminium -0.9% to $US1800 a tonne
- LME copper +0.5% to $US6180 a tonne
- 2-year yield: US 1.57% Australia 0.77%
- 5-year yield: US 1.65% Australia 0.82%
- 10-year yield: US 1.86% Australia 1.18% Germany -0.21%
- 10-year US/Australia yield gap about 5.15am AEDT: 68 basis points
Source: Thanks smh.com