Tuesday January 8 2018

OPENING CALL: The Australian market looks to open unchanged.

Oil’s ongoing rebound led the bounce in Aussie stocks as the market logged 1%-plus gains like many in Asia-Pacific have following Friday’s jump in U.S. equities.
U.S. stocks jumped, boosted by rallying technology shares, as officials from Washington and Beijing kicked off their latest round of negotiations over trade policy.

Overnight Summary


Market Quotes by TradingView

Each Market In Focus

Australian Market

Oil’s ongoing rebound led the bounce in Aussie stocks as the market logged 1% plus gains like many in Asia-Pacific have following Friday’s jump in U.S. equities. The ASX 200, which entered today down six of the past eight weeks, rose 1.1% to 5683.2 as energy climbed 2.4%. Mining-related names were also strong, with the materials sector advancing 2.2%. But health care fell 0.3% and REITs eased 0.4%.

US Markets

U.S. stocks jumped, boosted by rallying technology shares, as officials from Washington and Beijing kicked off their latest round of negotiations over trade policy. The Dow Jones Industrial Average rose 152 points, or 0.7%, to 23585, wiping out early declines. The S&P 500 jumped 1% and the Nasdaq Composite gained 1.4%. Investors are beginning the week with their focus on the U.S. and China’s negotiations, something many hope will help bring the two countries closer to a resolution in their trade fight. The fact that policy makers in the U.S. and China have agreed to meet is a positive sign, said Felix Lam, a portfolio manager at BNP Paribas Asset Management. Still, the key question is whether the two countries will reach a trade deal, Mr. Lam said. “Any positive outcome from the trade talks would have a more long-lasting impact on the earnings trajectory of corporations in Asia,” he said, adding that delays, on the other hand, could hit corporate profits. A broad rally in shares of rapidly growing technology companies pushed major indexes higher Monday. Amazon.com , Netflix and Advanced Micro Devices jumped more than 3%, with Amazon’s gains putting it on course to end the day as the largest publicly traded U.S. company. Those advances helped offset the latest slide in Apple , which retreated further for the year Monday. Worries about slowing iPhone sales and a dimmer revenue forecast sent the company’s shares sharply lower last week. Deal news also drove swings across the market. Loxo Oncology shares surged 66% after drugmaker Eli Lilly said was buying Loxo Oncology, adding to its cancer treatment portfolio. Meanwhile, Dollar Tree shares jumped 5.2% after activist investor Starboard Value took a stake in the company. Starboard is pushing the retailer to sell its Family Dollar business.

Commodities

Gold prices rebounded from Friday’s decline to start the week, boosted by a weaker dollar. Front-month gold for January delivery rose 0.3% to $1,286.80 a troy ounce on the Comex division of the New York Mercantile Exchange. Prices are near their highest level since mid-June, supported by a softer dollar that has recently made gold cheaper for overseas buyers. Stock-market volatility has also boosted the haven metal, which some investors favor during times of market turbulence. On Monday, the WSJ Dollar Index, which tracks the dollar against a basket of 16 other currencies, fell 0.3%. Long-term Treasury yields were also volatile as analysts parsed recent Federal Reserve comments suggesting the possibility of a slower pace of interest-rate increases this year as U.S. economic growth slows. Fewer rate increases also boost gold, which struggles to compete with yield-bearing assets when rates rise. Elsewhere in precious metals, most-active silver futures fell 0.2% to $15.756 a troy ounce. Platinum inched down 0.4% to $824.30, while palladium rose 0.5% to $1,240.20. Among base metals, most-active copper futures closed down 0.4% at $2.6370 a pound as analysts monitored trade negotiations. Fears about slowing growth and trade have punished industrial metals widely used in construction and manufacturing in recent weeks. On the London Metal Exchange, aluminum for delivery in three months climbed 0.7% to $1,878.50 a metric ton. Zinc rose 2.5% to $2,498, tin added 1% to $19,750, nickel was up 0.4% at $11,155 and lead edged up 0.2% to $1,953.

Iron Ore: 72.95s + 1.27 (February Contract)

Oil Futures

U.S. oil prices rose for a sixth straight session, the longest up-streak since July 2017, amid easing trade and economic worries, and after a report said Saudi Arabia would further reduce its crude-oil exports. West Texas Intermediate futures, the U.S. oil standard, ended 1.2% higher at $48.52 a barrel. Brent, the global oil benchmark, rose 0.5% to $57.33 a barrel on London’s Intercontinental Exchange. Brent has also risen six consecutive sessions, the most since January 2018. Oil prices reached an intraday high of $49.79 a barrel around mid-morning in New York after unnamed OPEC officials told The Wall Street Journal that Saudi Arabia plans to make new cuts to its crude-oil exports in the hopes of lifting oil prices The officials said Saudi Arabia aims to lift prices to cover a huge government spending boost — and plans to cut crude exports to 7.1 million barrels a day by the end of January. This compares to 7.3 million last month and 7.9 million in November. “The news that the Saudis will be more aggressive in cutting production will take prices back to the $55 level soon,” said Peter Cardillo, chief market economist at Spartan Capital. Crude prices were already tracking higher during the overnight session following positive sentiment from last week, including a strong U.S. jobs report and hopes for a resolution to the U.S.-China trade dispute, said Bjarne Schieldrop, chief commodities analyst at SEB Markets. Oil rose in tandem with global and U.S. equity markets Friday. However, Mr. Schieldrop said, “It’s hard to say if it’s the start of a more long-term rally or a short-term bounce.” Crude prices have also been supported by production cuts from the Organization of the Petroleum Exporting Countries and its allies that came into effect at the start of the month. OPEC and its production partners outside the cartel, led by Russia, agreed in early December to collectively hold back output by 1.2 million barrels a day for thefirst half of 2019. The “cuts will prevent a strong rise in inventories,” SEB’s Mr. Schieldrop said. Goldman Sachs sees WTI oil recovering slightly to average $55.50 a barrel this year, which is still well below forecasts prior to prices collapsing in October. “We expect that the oil market will balance at a lower marginal cost in 2019 given: (1) higher inventory levels to start the year, (2) the persistent beat in 2018 shale-production growth amidst little observed cost inflation, (3) weaker than previously expected demand growth expectations (even at our above consensus forecasts) and (4) increased low-cost production capacity,” Goldman said in a research note Sunday. “Our 2019 average forecasts are $62.5/bbl for Brent and $55.5/bbl for WTI with our 2020 respective forecasts unchanged at $60.0/bbl and $54.5/bbl.”

Forex

The U.S. dollar’s rivals reaped the benefits of a weak buck, with both the euro and the British pound gaining. The ICE U.S. Dollar Index , a gauge of the currency’s performance against six major rivals, dropped to its weakest level since mid-October, according to FactSet. The index was last down 0.5% at 95.668. The euro , the buck’s main competitor, rallied sharply in response, last buying $1.1479, up from $1.1398 late Friday in New York. The British pound fetched $1.2768, up from $1.2722 late Friday. British lawmakers will vote Jan. 15 on May’s Brexit plan, the BBC reported, citing government sources. The vote had been set for December but was postponed at the last minute to avoid defeat. The deal sets out the terms of the U.K.’s exit from the European Union, which is due to take place on March 29 regardless of whether Parliament OK’s the agreement May struck with fellow EU leaders. The biggest driver “in this market will likely remain the pound and while the rate has moved back above the $1.27 handle, it wouldn’t be too surprising if we experience fairly quiet trade in the coming days in a kind of calm before the storm as traders await next week’s key Brexit vote on PM May’s deal,” said David Cheetham, chief market analyst at XTB, in a note. Meanwhile, the dollar could be vulnerable to further softness amid expectations that the Federal Reserve will adopt a slower pace of rate increases, or perhaps even pause the tightening cycle, Cheetham said. The dollar fell Friday, giving back gains scored after a much stronger-than expected jobs report, following remarks by Fed Chairman Jerome Powell that were interpreted by investors as a sign the central bank was prepared to cool its tightening pace amid growing jitters among market participants that the economy is slowing.

European Markets

The Stoxx Europe 600 fell 0.1%, or 0.5 points to 342.88 as a recovery by tech stocks after last week’s Apple warning failed to offset losses for tobacco, utility, financial and brewing stocks. Austria’s AMS AG and Germany’s Siltronic AG climbed 9.6% and 6.2% respectively as investors returned after dumping the sensor and semiconductor makers following Apple’s cut to its revenue forecast. Centrica, Imperial Brands, British American Tobacco, Heineken and HSBC were among the stocks leading the pan-European index lower.

Asian Markets

In Asia, equities made strong gains. Japan’s Nikkei 225 led the rally, rising 2.4%, helped by a calmer yen, which steadied at 108.21 a dollar. South Korea’s Kospi climbed 1.4%, Australia’s S&P/ASX 200 benchmark rose 1.1% and Hong Kong’s Hang Seng Index rose 0.8%. China’s Shanghai Composite advanced 0.7%. It rallied 2.1% Friday ahead of a well-flagged move by the People’s Bank of China to add a net 800 billion yuan ($116.48 billion) of liquidity into the banking system by cutting banks’ reserve requirements. The strong climbs in Asia followed a stock surge on Wall Street Friday, after better-than-expected U.S. nonfarm payroll figures suggested a healthy labor market and eased investors’ concerns about the potential for a U.S. economic slowdown. Comments later that day from Federal Reserve Chairman Jerome Powell–who said economic data suggested good momentum heading into the new year–added a further boost to see the Dow industrials close nearly 750 points higher, or 3.3.

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