Thursday 29 November 2018

OPENING CALL: The Australian market looks to open higher with SPI Futures up 40 points.

Australia’s stock benchmark was back to being an underperformer after being Asia-Pacific’s biggest gainer yesterday, and commodities again hit the market.
U.S. stocks surged intraday, with the Dow Jones Industrial Average and S&P 500 erasing their November declines after Federal Reserve Chairman Jerome Powell said interest rates are “just below” a level considered neutral.

Overnight Summary


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Each Market In Focus

Australian Market

Australia’s stock benchmark was back to being an underperformer after being Asia-Pacific’s biggest gainer yesterday, and commodities again hit the market. With metals prices sliding anew overnight, the materials sector slid 0.7% to hit another 14-month low as Rio Tinto lost 2.2% amid this week’s slump in iron-ore prices. As such, the ASX 200 fell 3.2 points to 5725.1 after having risen in three of the prior four trading days. Many sectors were little changed as well, though IT jumped 1.3% and consumer discretionary lost 0.5%.

US Markets

U.S. stocks surged intraday, with the Dow Jones Industrial Average and S&P 500 erasing their November declines after Federal Reserve Chairman Jerome Powell said interest rates are “just below” a level considered neutral. The Dow industrials extended this week’s rebound 1.6%. The S&P 500 climbed 1.2%, joining the blue-chip index in the green for the month, and the tech-heavy Nasdaq Composite rose 1.2%. A rise for major indexes would be the first time since Nov. 1 that all three benchmarks have climbed in three consecutive sessions. The indexes are all up more than 3.4% for the week. Mr. Powell appeared to retreat from a comment he made in early October that described the Fed’s benchmark rate setting as a “long way” from a neutral level. In remarks to the Economic Club of New York, he said the Fed will remain dependent on economic data as it continues gradually raising interest rates. The remarks assuaged worries that aggressive interest-rate hikes by the Fed could slow economic and profit growth moving forward, investors said. Concerns about tighter financial conditions have contributed to recent stock-market declines, with some analysts expecting the central bank to raise rates next month and continue boosting them next year. Higher rates have also made some analysts anxious that the global economy will weaken as the tariff fight between the U.S. and China drags on, hurting other risk assets from commodities to emerging markets. Mr. Powell’s comments also lifted those markets, with most-active copper futures surging 3.2%. Many investors use the metal to gauge growth sentiment because it is heavily used in construction and manufacturing.

Commodities

Gold prices rose, after comments from Federal Reserve Chairman Jerome Powell suggested the central bank may raise rates at a slower than expected pace next year. Gold for November delivery closed 0.8% higher at $1,221.40 a troy ounce on the Comex division of the New York Mercantile Exchange. In a Wednesday speech, Mr. Powell described interest rates as low by historical standards and “just below” a broad range of Fed officials’ estimates of a level considered neutral, a setting designed neither to speed nor slow growth. Some market participants interpreted the remark as a sign that the Fed may be less aggressive in raising rates next year. Expectations of a more dovish monetary policy path tend to boost gold, which struggles to compete with yield-bearing investment when rates rise. Some investors are reversing bets on a lower gold price by buying back the metal, a phenomenon known as short covering, Mr. Gero said. Mr. Powell’s comments also weighed on the dollar, giving a further boost to gold and other metals, which are denominated in the U.S. currency and become more affordable to foreign buyers when the dollar falls. The WSJ Dollar Index was recently down 0.5% to 90.34. In base metals, copper for March delivery shot up 3% to $2.81 a pound.

IRON ORE: 64.66s + 1.67 (December contract)

Oil Futures

Oil prices fell sharply after data showed U.S. crude-oil inventories rose for a 10th straight week. Light, sweet crude for January delivery ended 2.5% lower at $50.29 a barrel on the New York Mercantile Exchange. Crude prices are down three of the past four sessions, and have plunged 34% since hitting a multiyear high of $76.41 a barrel in early October. Key factors pushing oil lower have been higher U.S. oil inventories and production, as well as worries that future demand for oil could decline if the global economy slows sharply due to U.S.-China trade problems. Brent, the global crude oil benchmark, ended 2.4% lower at $58.76 a barrel. The Energy Information Administration reported Wednesday that U.S. oil inventories rose last week by a much-larger-than-expected 3.6 million barrels, to 450.5 million barrels, marking a 10th straight weekly increase. The rise came even though U.S. refinery activity surged by 3 percentage points last week to a nearly full-tilt, 96% utilization rate. straight weeks of rising U.S. inventories. Crude oil — which like other dollar-denominated commodities tends to have an inverse relationship with the U.S. currency — turned higher mid session Wednesday after the dollar began to weaken when comments by Federal Reserve Chairman Jerome Powell led some traders to begin forecasting just one interest rate hike next year. But oil’s gains didn’t last for long even though the dollar has remained weaker, with the WSJ Dollar Index recently trading 0.5% lower. Oil-market participants continued to look to a crucial gathering next week in Vienna of the Organization of the Petroleum Exporting Countries and its production allies, led by Russia. Pressure is mounting on the producers to engineer another production cut to rein in excess supply and bolster prices.

Forex

The U.S. dollar weakened intraday after comments by Federal Reserve Chairman Jerome Powell tempered concerns that the path of rate hikes could hamper economic growth. Mr. Powell said interest rates are “just below” neutral, designed to neither accelerate nor slow growth. He also said the Federal Reserve doesn’t have a “preset” policy path and will pay close attention to economic data. His comments at the Economic Club of New York spurred buying in both major U.S. stock indices and 10-year Treasurys. Gains in Treasury prices tend to depress appetite for the dollar because of the lower yields that the bonds offer as a result. The WSJ Dollar Index, which measures the U.S. currency against a basket of 16 others, fell 0.6% to 90.25, on track to snap a three-session streak of gains. Investors will also be closely analyzing the Federal Reserve’s minutes to be released on Thursday for further clues on the path of rate increases. The euro was up 0.7% to $1.1373, according to FactSet. The dollar fell 0.2% against the yen to ¥113.54.

European Markets

The Stoxx Europe 600 ended Wednesday flat at 357.4 as investors sat on the sidelines amid political uncertainty across the continent and beyond. The DAX closed 0.09% down while the CAC-40 was flat and Milan’s FTSE MIB dropped 0.2%. “European stock markets are mixed as investors remain nervous about the geopolitical situation,” said David Madden of CMC Markets. “Uncertainty surrounding Brexit, U.S.-China trade relations, and the Italian budget are acting as a ceiling to equity markets,” he said. Still, Italian banks shrug off the jitters, with Banco BPM up 4.4% and UniCredit gaining 1.9%.

Asian Markets

Australia’s stock benchmark was back to being an underperformer after being Asia-Pacific’s biggest gainer yesterday, and commodities again hit the market. With metals prices sliding anew overnight, the materials sector slid 0.7% to hit another 14-month low as Rio Tinto lost 2.2% amid this week’s slump in iron-ore prices. As such, the ASX 200 fell 3.2 points to 5725.1 after having risen in three of the prior four trading days. Many sectors were little changed as well, though IT jumped 1.3% and consumer discretionary lost 0.5%.

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