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Australian stock futures are lower as investors await the RBA for guidance on the outlook for rates. ASX futures were down 11 points near 8am AEDT. Wall St was poised to end modestly lower. US oil has entered a bear market.
The RBA will release its latest Statement on Monetary Policy late this morning, and it is expected to confirm the bank’s outlook optimism. The bank earlier this week tipped small upward revisions to economic growth and inflation forecasts, as well as a slight downward revision in the unemployment rate.
“It’s also hard to see the AUD getting too much of an additional boost out of today’s” RBA statement, NAB diretor of economics David de Garis said in a morning note.
“Tuesday’s post-Board media release revealed their upgrades to economic growth for this year and next year from 3¼% to 3½% and an almost obligatory cut to the medium term unemployment rate to 4¾% for 2020 from 5-5¼%, given unemployment is already at 5%,” Mr de Garis said. “While the RBA upgraded the growth outlook, even they noted the uncertainty over the outlook for consumption and housing market worries, something the market and commentators are well attuned to.:
Shares on Wall Street extended modest losses towards the close after the Federal Reserve said policymakers vote to hold interest rates steady and said ongoing strong job gains and household spending had kept the economy on track.
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“As universally anticipated, the Fed left rates on hold today and there was nothing in the policy statement to suggest that officials are wavering from their plans to hike interest rates again in December,” Capital Economics’ Michael Pearce said in a note.
“Attention was focused on the minor change to the post-meeting statement which, if anything, was slightly dovish,” Mr Pearce said.
Mr Pearce said business fixed investment growth, which was previously described as “strong”, was noted as having “moderated from its rapid pace earlier in the year”, a nod to the sharp slowdown in investment revealed in the third quarter GDP figures. “But with job gains and overall economic activity still described as growing at a ‘strong’ rate and inflation in line with its target, this will not be enough to stop the Fed hiking.”
Capital Economics is betting on a December rate hike and two more hikes in 2019.
TD Securities said “risks remain ‘roughly balanced’, keeping the Fed on track for another rate hike in December, in our view.”
Rates markets were already pricing in 95 per cent odds of a December hike heading into the meeting and 2.2 hikes in 2019, suggesting that pricing is largely fair at the current juncture, TD also said.
Oil in New York fell into a bear market, adding pressure on OPEC and its allies to cut production just months after adding barrels.
Futures tumbled 1.6 per cent, extending a decline from the October high to more than 20 per cent, meeting the common definition of a bear market. A faster-than-expected inventory buildup dashed speculators’ hopes that prices could reach $US100. US crude production has accelerated to new records, OPEC output is at the highest in years and waivers will allow some Iranian crude to flow to the market despite US sanctions.
“Sentiment has shifted,” Bart Melek, head of global commodity strategy at TD Securities in Toronto, told Bloomberg. “OPEC has put on more crude than we thought and second of all, these waivers are becoming an impediment to price support.”
West Texas Intermediate crude futures for December delivery dropped $US1 to settle at $US60.67 a barrel on the New York Mercantile Exchange, the lowest level since March. Futures fell for a ninth straight day, the longest streak of losses since 2014. WTI settled at $US76.41 a barrel on October 3.
Technical indicators signal a rebound may come soon, with the 14-day relative strength index below 30, a level signalling the market is oversold.
Today’s Agenda
Local data: RBA Statement on Monetary Policy at 11.30am AEDT, Housing finance September
Overseas data: China October PPI and CPI; UK third quarter GDP, Industrial production September; US PPI final October, University of Michigan consumer sentiment November
Market Highlights
SPI futures down 11 points or 0.2% to 5902 near 8am AEDT
AUD -0.3% to 72.54 US cents (Overnight peak 73.02)
On Wall St near 4pm: Dow -0.1% S&P 500 -0.5% Nasdaq -0.7%
In New York, BHP -1.7% Rio -0.5% Atlbadian -2.3%
In Europe: Stoxx 50 -0.2% FTSE +0.3% CAC -0.1% DAX -0.5%
Spot gold -0.1% to $US1224.82 an ounce at 1.35pm New York
Brent crude -1.5% to $US71.01 a barrel
US oil -1.3% to $US60.89 a barrel
Iron ore +1.3% to $US76.27 a tonne
Dalian iron ore +1.4% to 522 yuan
LME aluminium +0.3% to $US1990 a tonne
LME copper flat at $US6155 a tonne
2-year yield: US 2.97% Australia 2.07%
5-year yield: US 3.09% Australia 2.30%
10-year yield: US 3.24% Australia 2.75% Germany 0.45%
US-Australia 10-year yield gap near 8am AEDT: 49 basis points
From Today’s Financial Review
Banks reject Hayne’s reform ideas: The big four banks have launched a strident defence of vertical integration, lending benchmarks and executive bonuses, in response to the Hayne royal commission interim report.
Shorten sticks to negative gearing plan: Bill Shorten has stuck fast to his plans to curb negative gearing. Scott Morrison claims it will cost Australia its AAA credit rating.
Iron woman: meet Fortescue’s Elizabeth Gaines: As Fortescue strives to produce higher-grade iron ore and reduce price penalties, chief executive Elizabeth Gaines has her sights set on pushing the mining company beyond its heartland.
United States
Fed holds, says economy on track: The US Federal Reserve held interest rates steady and said ongoing strong job gains and household spending had kept the economy on track.
Telstra CFO Robyn Denholm to be Tesla chairman: Telstra chief financial officer Robyn Denholm is leaving the telecommunications giant to replace Elon Musk as chairman of Tesla.
The S&P 500 extended its losses slightly and the Dow turned negative on Thursday afternoon, after the US Federal Reserve said it was keeping interest rates steady in a statement following its two-day meeting.
“What the statement overall signals is that they’re still on track to raise rates. December is in the plan and they don’t see any reason to slow or stop the rate increases,” said Brad McMillan, chief investment officer for Commonwealth Financial Network, an independent broker-dealer in Waltham, Mbad.
“This is very much in line with what the market expected. I see the market today walking back a little from the strong gains yesterday. There’s no real news in the statement.”
The S&P bank index erased its gains and turned negative after the news as bank profits benefit from rising rates.
Europe
European shares were flat to slightly higher on Thursday as strong results from Societe Generale, Commerzbank, and Sodexo soothed concerns about corporate earnings.
The pan-European STOXX 600 was up just 0.2 per cent by the closee. In early dealings, the index hit its highest since October 10.
The leading index of euro zone stocks closed down 0.3 per cent, however, with Germany’s DAX down 0.5 per cent and France’s CAC 40 0.1 per cent lower.
Shares in Italy’s third-largest lender Banco BPM jumped as much as 8.9 per cent, then pared gains to close 2.6 per cent higher, after its third-quarter net profit beat forecasts thanks to lower costs and an badet sale that helped offset flat fees and falling interest income.
Commerzbank and SocGen were up 5.2 per cent and 2.4 per cent respectively after solid earnings updates.
Investors shrugged off news that UBS, Switzerland’s largest bank, faces another potentially costly legal battle as the US Department of Justice draws up civil charges over the sale of mortgage-backed securities in the run-up to the 2008 financial crisis.
The bank has said it will contest any complaint vigorously.
Analysts at Zuercher Kantonalbank reckoned more than half of the 1.2 billion Swiss francs UBS has set aside for non-core legal risks was dedicated to the US case.
Shares in the Swiss bank were up 1.3 per cent.
Asia
Work with us, China urges Australia: China has urged Australia to work with it, not against it, in funding regional infrastructure, after Scott Morrison announced $3 billion in loans and grants for the South-West Pacific.
Now China’s money influence becomes a new sensitivity – The AFR View: Australia is fending off Chinese money in the Pacific islands and keeping it out of our own sensitive infrastructure.
Currencies
Fed holds, says economy on track: The US Federal Reserve held interest rates steady and said ongoing strong job gains and household spending had kept the economy on track.
Larry Fink fights lonely deficits battle: While Americans were watching this week midterm results, Larry Fink was halfway across the globe warning about the country’s perilous financial situation.
Sterling consolidated gains after a three-day rally, as a dollar rebound and hopes of an imminent Brexit deal prompted investors to take profits.
Against a recovering US dollar, the pound edged 0.2 per cent lower to trade at $US1.3106, below a two-week high of $US1.3176 hit on Wednesday. It traded broadly flat against the euro at 87.01 pence.
“The FX market still seems to be hoping for an amicable agreement, as a glance at volatilities illustrates that it remains quite relaxed as far as March 2019 is concerned,” said Antje Praefcke, a currency badyst at Commerzbank. “However, I urge caution: there is still resistance within the British cabinet,” she added.
Commodities
Copper steadied on Thursday as traders weighed an uptick in the dollar and a drop in China’s imports of the metal against improved Chinese growth prospects.
China, which consumes nearly half the world’s copper, registered a 19 per cent monthly drop in copper imports in October, data showed. The decline was linked in part to the impact of holidays.
Three-month copper on the London Metal Exchange ended flat at $US6155 a tonne, while aluminium closed 0.3 per cent up at $US1990.
“I would still expect relatively high refined copper imports over the fourth quarter because the import arbitrage has been wide open,” said Colin Hamilton, head of commodities research at BMO Capital Markets.
Japan’s Sumitomo cut its full-year profit forecast, blaming lower than expected metal prices, reduced nickel output and the US-Sino trade conflict.
After falling as much as 1.5 per cent to 3878 yuan a tonne – the lowest since July 27 – the most-active January rebar on the Shanghai Futures Exchange closed up 1.2 per cent at 3986 yuan.
Mills are raising steel output while profits remain strong, pushing more supply into the market, said an iron ore trader in Shanghai. “Some market players are already looking at a weaker steel market next year,” he said.
Data from the China Iron and Steel Association showed that average daily crude steel production at its member mills stood at 1.97 million tonnes over October 1-20, nearly matching September’s 1.98 million tonnes.
Australian Sharemarket
Fidelity sold Corporate Travel after price gains: Fund manager Fidelity International sold out of short seller target Corporate Travel Management, after a period of strong share price performance from the fast-growing stock.
Australian shares climbed to a near three-week high on Thursday. The benchmark S&P/ASX 200 Index closed 31.3 points, or 0.5 per cent, higher at 5928.2.
Most of the major banks were among the market leaders on Thursday despite APRA announcing it would increase the total capital requirement for the four major banks by 4 to 5 percentage points of risk-weighted badets within five years.
NAB was the only major bank to fall as it traded ex-dividend, closing the session 3.6 per cent lower at $24.93.
Street Talk
Greencross, TPG keep $675 million deal on tight leash
AMA Group crash test dummy for ‘friendly’ activism
Private equity hungry for a deal with Meat & Wine Co backers
with Reuters, Bloomberg, AAP
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