The local sharemarket looks to be headed for another record day after US stocks rose following the signing of a long awaited trade deal with China.
The SPI200 futures contract was up 16 points, or 0.2 per cent, at 6946 at 7.30am this morning following a new high on the Australian Stock Exchange of 6,996.8 points on Wednesday.
US stocks ended higher on Wednesday with the Dow posting a record close after the United States and China signed a Phase 1 trade agreement and pledged to resolve a tariff dispute that has roiled financial markets for over a year.
1. Signed, sealed, delivered: Investors spent Wednesday preparing for and then digesting the details of the “phase one” US and China trade deal. Initial reactions, judging by the moves on Wall Street, appear to be slightly mixed, if not marginally positive. After an initial sell-off after the deal’s publication, the S&P500 ended the day 0.2 per cent higher and the Dow closed at a record.
2. Key points from the trade deal: The trade deal addresses several ongoing issues that had defined the 18-month old trade dispute: China has committed to increase its purchase of US goods by a minimum $US200 billion; China has committed to increase its efforts to protect intellectual property; China has also pledged to take steps against forced technology transfer in its economy and has promised to open up its financial services industry to US firms. Both sides have agreed to establish an enforcement mechanism to manage competitive currency devaluations.
3. US earnings season: Traders were also busy assessing corporate results overnight on Wall Street. The big financial stocks continued to be the focus. Goldman Sachs reported and missed estimates, largely due to ongoing legal costs associated with the 1MBD scandal. Bank of America also underwhelmed, after it reported a drop in net interest income. But Target was perhaps the major disappointment. The retailer cuts its sales outlook, citing weak consumer activity during the Christmas sales period, with the result stoking some concern about the state of US consumption.
4. ASX set for positive open: Wall Street’s positive end to its session is setting up the ASX200 for a solid start today. SPI Futures are implying the index ought to open 16 points higher this morning. The move will likely see the ASX200 break through the 7000 mark, which the market fell just short of yesterday. Calls of a touch of exuberance in stock markets are growing louder as valuations domestically and abroad become increasingly rich, raising concerns of a looming correction.
5. British inflation data falls short: In macroeconomics, UK CPI data captured the lion’s share of attention. It missed estimates, coming in at 1.3 per cent versus a 1.5 per cent forecast. The data adds to a series of disappointing data releases out of the UK recently, and further adds fuel to the notion that the Bank of England ought to be cutting interest rates soon. The market has now increased the odds of a rate cut at the end of the month from the Bank of England to 67 per cent.
6. US producer price pressures subdued: US PPI data also registered highly on traders’ minds overnight. Following on from Tuesday’s CPI release, US producer inflation was shown to have missed market forecasts coming in at 0.1 per cent versus an estimated 0.2 per cent. The data was seen as further evidence that price pressures remain subdued in the US economy. US Treasury yields dipped as a result of the news, while the US dollar traded lower against other G10 currencies.
7. Oil prices fall on US inventory data: Oil prices were a major macro mover overnight. Brent and WTI Futures prices fell after weekly US Crude Inventory data underwhelmed oil market bulls and cast doubt over the strength of global energy demand. Despite showing a bigger than expected drawdown overall, a much bigger than expected build in gasoline and distillates saw traders push the price of oil down by nearly half a per cent. Oil prices are now trading at lows not seen since the beginning of December.
8. Markets wrap
- AUD flat at 69 US cents
- On Wall St near 3.30pm: Dow +0.3% S&P 500 +0.2% Nasdaq 0.1%
- In New York: BHP -0.5% Rio -0.6% Atlassian +0.6%
- In Europe: Stoxx 50 -0.2% FTSE +0.3% CAC -0.1% DAX -0.2%
- Nikkei 225 futures +0.1% Hang Seng futures +0.1%
- Spot gold +0.5% to $US1554.41/oz at 1.23pm New York
- Brent crude -0.6% to $US64.08 a barrel
- US oil -0.6% to $US57.91 a barrel
- Iron ore -0.6% to $US96.44 a tonne
- Dalian iron ore +0.2% to 668 yuan
- LME aluminium -0.4% to $US1801 a tonne
- LME copper -0.2% to $US6287 a tonne
- 2-year yield: US 1.56% Australia 0.80%
- 5-year yield: US 1.60% Australia 0.85%
- 10-year yield: US 1.78% Australia 1.21% Germany -0.20%
- 10-year US/Australia yield gap near 7.30am AEDT: 57 basis points
This column was produced in commercial partnership between The Sydney Morning Herald, The Age and IG
Information is of a general nature only.
Source: Thanks smh.com