ASX to climb as iron ore surges again; Wall Street finishes higher

The key factor keeping equity markets rising is hopes for an imminent fiscal stimulus package. Risk appetite was stoked last week after it was reported US Congressional Democrats and Republicans have returned to the negotiating table, with both sides agreeing to begin talks on a compromised $US908 billion stimulus bill.

The need for further stimulus was emphasised by a US Non-Farm Payrolls report that greatly missed expectations on Friday, with stock markets rallying in the hope a weakening economic recovery will put further pressure on policymakers to act

European Central Bank

The markets are expecting the announcement of more economic stimulus for the Eurozone this week, as the European Central Bank meets for the last time in 2020. Having flagged the need to provide further monetary support to its economy at its last meeting, the ECB is expected to expand its Pandemic Emergency Purchase Program to as much as €2 trillion ($3.3 trillion) – a major increase from the initial €750 billion promised. The ECB’s actions will come at a time when the Eurozone’s economic recovery has been put on ice, as several European nations remain in partial lockdown and market participants weigh the risk of a “no deal” Brexit.

Brexit

Brexit negotiations continue to go down to the wire, with fears mounting within financial markets that a trade agreement may not be struck by the end of the transition period at the end of the month.

Talks between UK and EU leaders reportedly stalled last week, as the thorny issues of fisheries, an “equal playing field” and governance remain key sticking points, with Europe’s top negotiator Michel Barnier reportedly telling European ambassadors last week to prepare for a no-deal outcome. The markets are taking the risk of a no deal scenario in stride, with the GBP/USD climbing close to multi-year highs last week.

Bitcoin

Bitcoin has managed to maintain its relatively quiet ascent to record highs. The price of the crypto-currency remains in touching distance of the significant $US20,000-mark. The milestone has come with far less fanfare than the meteoric rise bitcoin experienced in late-2017, with some in the market suggesting it’s a sign that this time the climb has staying power.

The fundamental reasons for the surge in cryptos are varied. But it has been suggested that the rise is being underpinned by more institutional money, as a highly liquid environment for financial markets coupled with a small degree of concerns about future inflation has some investors seeking alternative stores of value.

ASX 200

Heading into the new week, SPI Futures are suggesting a positive open for the ASX200, with the December contract implying a 0.63 per cent jump for the index on Monday. It will extend what’s been a very positive period for Australian equities, which finished last week’s trade 0.4 per cent higher, to post a weekly gain for the fifth successive week.

The ASX/200 continues to benefit from the global “re-opening” trade: materials and energy stocks led the market higher last week, with the former adding a noteworthy 5.26 per cent as the price of iron ore hit a new 7-year high.

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This column was produced in commercial partnership between The Sydney Morning Herald, The Age and IG. Information is of a general nature only.