Thursday 10 January 2018

OPENING CALL: The Australian market looks to open higher with SPI Futures up 10 points.

Australian stocks were solid, but gains didn’t get built on this afternoon as many markets in Asia steadily climbed and are up more than 1%.
U.S. stocks edged higher, boosted by optimism over trade talks and signs that the Federal Reserve will stay flexible with its interest-rate increases.

Overnight Summary

Market Quotes by TradingView

Each Market In Focus

Australian Market

Australian stocks were solid, but gains didn’t get built on this afternoon as many markets in Asia steadily climbed and are up more than 1%. The S&P/ASX 200 rose 1% to 5778.9, an 8-week closing high. Energy and health-care each jumped about 2%. But the heavily weighted financial and material sectors added just 0.7% and 0.5%, respectively. Utilities rose 0.2%.

US Markets

U.S. stocks edged higher, boosted by optimism over trade talks and signs that the Federal Reserve will stay flexible with its interest-rate increases. The Dow Jones Industrial Average was recently up 160 points, or 0.7%, at 23948, while the S&P 500 also added 0.7%. A fourth consecutive climb for the benchmarks would be the first time since Sept. 14 they have both risen that many sessions in a row. They entered the day up more than 9% from their Dec. 24 lows but still off more than 11% from their 2017 records. The tech-heavy Nasdaq Composite climbed 1.1%. Major indexes had briefly dipped alongside oil prices and Treasury yields in midmorning trading before stabilizing. While anxiety that the U.S.-China trade fight will weaken the global economy has hurt stocks and other risky investments in recent months, some analysts are still optimistic the two sides can reach a compromise. Three days of discussions between officials from the countries ended Wednesday, with both sides seemingly upbeat about progress toward a trade deal. Tariffs were a major reason why the World Bank cut its forecasts for global growth in 2019 and 2020 late Tuesday, so analysts are trying to determine how shifts in the economy could impact corporate profitability. A number of Fed officials have said in recent days that the central bank can be patient with rate policy this year, easing some fears of further policy tightening as the economy slows. Minutes from the latest Fed meeting showed many officials believed they could be close to ending their recent series of rate increases, another reason analysts think the global economy can do well enough to boost risk assets this year. Energy shares extended a recent rebound, with U.S. crude oil prices climbing for the eighth consecutive session as oversupply fears eased. Oil was recently up 4.9% at $52.23 a barrel, up more than 20% from its Dec. 24 low and on track to start a new bull market but still about 30% off its early October multiyear high. Stocks and commodities have been trading in similar directions recently as news about trade and interest rates shifts the outlook for economic growth and demand of a range of products and materials. Wednesday’s Fed minutes were the latest sign of caution from the central bank. Fed Chairman Jerome Powell said Friday he sees flexibility on rates this year, and the presidents of the Atlanta Fed, Chicago Fed and Boston Fed made similar comments in separate speeches Wednesday. But expectations for fewer rate increases have also stoked fears that the U.S. economy will slow more than anticipated this year.


Gold prices rose, boosted by dovish comments from Federal Reserve officials and a weaker dollar. Gold for February delivery was up 0.5% at $1,292 a troy ounce on the Comex division of the New York Mercantile Exchange. Federal Reserve Bank of Chicago President Charles Evans on Wednesday said the central bank can take some time before it raises rates again amid an uncertain economic outlook. Mr. Evans will be a voting member of the Fed’s rate-setting Federal Open Market Committee this year. Boston Fed President Eric Rosengren, also set to hold a voting role this year, said he is willing to hold off on more rate increases until there is greater clarity over the economic outlook. Fed Bank of Atlanta President Raphael Bostic, a nonvoting member, said Wednesday the Fed has short term interest rates about where they need to be right now amid uncertainty over the economic outlook. Expectations that the Fed will be slower to raise rates tend to boost gold, which struggles to compete with yield-bearing investments when rates rise. Minutes from the Fed’s latest monetary policy meeting, released in the afternoon, showed officials believed they could be close to ending their recent series of rate increases, bolstering dovish sentiment further. A weaker dollar also helps gold, which is denominated in the U.S. currency and becomes more affordable to foreign buyers when the dollar declines. The WSJ Dollar Index was recently down 0.6% at 88.91. In base metals, copper for March delivery was broadly unchanged at $2.6570 a pound.

Iron Ore: 72.66s – 0.40 (February Contract)

Oil Futures

U.S. oil prices technically entered a bull market Wednesday, surging to a nearly four-week high as the Saudis cheerleaded for higher prices and the U.S. and China appeared to make progress toward resolving their trade dispute. Investors shrugged off another bearish report on U.S. oil inventories. West Texas Intermediate futures, the U.S. oil standard, ended 5.2% higher at $52.36 a barrel on the New York Mercantile Exchange, its highest since Dec. 13. That effectively puts WTI in a bull market, generally defined as a 20% rise from recent lows, because prices closed Christmas Eve at an 18-month low of $42.53 a barred, which is 23% down from Wednesday’s close. Having said that, oil prices are still a huge 31% lower than an early October high of $76.41 a barrel, so bearish sentiment remains in the market. Brent crude, the global oil benchmark, rose 4.6% at $61.44 a barrel on London’s Intercontinental Exchange, its highest closing price since Dec. 13. Global and U.S. stock markets extended recent gains Wednesday as the U.S. and China held their third day of trade discussions, with investors hopeful that progress was being made. The talks with China were going “very well,” President Trump tweeted Tuesday. The trade dispute had rattled confidence in the outlook for global economic growth, arousing concerns of a knock-on negative effect on oil demand. “The fall in oil prices at the end of 2018 was driven not only by the oversupply, but also by the selloff on the stock markets,” said analysts at Commerzbank in a daily note. “This was due to fears that the trade conflict will slow economic growth in the U.S. and China.” Recent strength in oil prices has also come from a report in The Wall Street Journal that said Saudi Arabia, in an effort to boost Brent prices to $80 a barrel, plans to make additional cuts to its crude-oil exports by bringing them down to around 7.1 million barrels a day. “Oil’s breaking above $50 on strong Saudi support,” said Jay Hatfield, portfolio manager of the InfraCap Active MLP ETF with $500 million in assets under management. He said the move is “bullish for [Master Limited Partnerships] undervalued with very strong fundamentals and distribution growth.” Markets mostly ignored another bearish weekly report Wednesday on U.S. oil inventories from the Energy Information Administration. The data showed oil inventories declined by a modest 1.7 million barrels last week. And while that was in line with expectations, the report said gasoline and distillate fuel stockpiles exploded higher, rising by a combined 19 million barrels, which was far more bearish than analysts expected. Crude prices have whipsawed in recent weeks, between fears of oversupply with a weakening demand outlook, versus optimism that output cuts by the Organization of the Petroleum Exporting Countries and its allies, along with a resolution to the U.S. and China trade dispute, will cancel out any glut. “We’re not anticipating any large stock builds in Q1, we’re looking for a fairly balanced market,” said Paul Horsnell, head of commodities research at Standard Chartered. A combination of OPEC cuts and slowing U.S. production growth will help balance the market, Mr. Horsnell added.


Bank of Canada leaves interest rates unchanged; U.K. government loses key Brexit timetable vote. The U.S. dollar carved out a three-month low, deepening its losses during Wednesday’s trading session after the Federal Reserve’s December meeting minutes showed a dovish tilt in the central bank. While multiple comments from officials, as well as a lowered expectations of rate
increases in 2019 from three to two already pointed to a change of sentiment at the Fed, the minutes hammered that point home on Wednesday. Some central bank officials had been in favor of pausing the rate increases in December already, and many agreed that the Fed could be patient with their hikes going forward. The ICE U.S. Dollar Index in response slipped to its session low, which marked a fresh three-month nadir. The gauge was last down 0.7% at 95.200, according to FactSet data. The rose to its best level since October at $1.1546, versus $1.1442 late Tuesday. Similarly, the British pound climbed higher to $1.2796 from $1.2716, its highest since late November. In other central bank news, the Bank of Canada kept its benchmark interest rate steady at 1.75% and downgraded its projections for 2019 gross domestic product growth to 1.7%, in part due to the drop in oil prices. Nevertheless, the Canadian dollar strengthened, with the greenback last buying C$1.3222, down from C$1.3274 late Tuesday. In Brexit matters, the U.K. government suffered two blows in parliamentary votes on Wednesday. First, 303 U.K. lawmakers backed an amendment that restricts the government from making changes to tax laws if it forces the country into a no deal Brexit. Then, parliament voted in favor of the so-called Grieve amendment, which says that May’s government has three days to come up with an alternative if her Brexit deal gets voted down next Tuesday. Otherwise, control of Brexit reverts to Parliament.

European Markets

The Stoxx Europe 600 rose 0.5%, or 1.85 points to 347.7 on hopes of a breakthrough in the U.S.-China trade impasse. The DAX and CAC-40 both gained 0.8%. Stocks are pushing higher into the close after U.S.-China trade talks ended on an optimistic note, said David Madden at CMC Markets. “It was reported that\ Beijing will release details of the talks on Thursday, but a more recent report claims the release date might change,” he said. “Traders are aware some structural issues still persist, and that more issues need to be resolved, but the overall mood is positive.”

Asian Markets

In Asia, Hong Kong’s Hang Seng Index and benchmarks in South Korea and Taiwan gained more than 1.8%. The move marked a four-week high for the Hang Seng. Hong Kong-listed Geely Automobile Holdings and Tencent Holdings jumped 8.4% and 3.8%, respectively. Three days of midlevel discussions between the U.S. and China ended Wednesday, with both sides seemingly upbeat about progress toward a trade deal. “Talks with China are going very well!” President Trump said in a tweet Tuesday. While the countries were still far from reaching an overarching trade deal, they appeared to have progressed toward bridging the acrimonious divide that unnerved market participants during 2018. U.S. access to Chinese markets and Chinese purchases of U.S. goods were among the topics discussed.

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