CLOSING COMMENTS 25-03-19

The ASX200 closed down 69 points today. Profit taking in the IT sector, banks slammed, defensives outperform, central bank put suddenly out-of-the-money…quiet week ahead

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TODAY

  • Japanese data – All Industry Activity Index
  • Ex-dividend – Bega Cheese (BGA) 5.5c, Briscoe Group Australasia (BGP) 11.6c, Big River Industries (BRI) 2.2c, Cochlear (COH) 155.0c, Cedar Woods Properties (CWP) 18.0c, Gale Pacific (GAP) 1.0c, SEEK (SEK) 24.0c, Seven Group (SVW) 21.0c

 


LAST WEEK

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THIS WEEK

  • Very quiet domestically
  • Chinese industrial profits (Wednesday)
  • UK – GDP
  • US – 3rd estimate of GDP, lots of housing data (housing starts, building permits, FHFA housing price index), pending home sales), PCE price index

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OVERNIGHT

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SPI FUTURES -50

US EQUITIES – S&P 500 -54 (-1.90%), Dow -460 (-1.77%), NASDAQ -196 (-2.50%)

Main themes

  • Global growth concerns after weaker European PMI numbers
  • Bonds rallied, US10 year yield down 8bp. German 10 year -ve yield for he first time since October 2016.
  • Cyclical sectors underperformed, defensives better – Utilities only positive performing sector

EUROPEAN MARKETS – All significantly lower. STOXX500 -1.22%, UK FTSE -2.01%, German DAX -1.61%, French CAC -2.02%.

CURRENCIES

  • The USD is stronger at 96.55
  • The Aussie dollar is weaker at US70.89.

BONDS – 2-yr: -8 bps to 2.32%, 3-yr: -9 bps to 2.25%, 5-yr: -9 bps to 2.26%, 10-yr: -8 bps to 2.46%, 30-yr: -8 bps to 2.89%. The spread between the 3-month yield (2.45%) and the 10-yr yield briefly inverted for the first since 2007.

COMMODITIES

  • Oil – WTI futures were down US94c or 1.6% to US$59.04 on the global growth slowdown lack of trade progress stories.
  • Iron Ore – IRESS reports that iron ore was unchanged at US$87.00. CommSec reports iron ore was up US$2.70 or 3.2% to U$86.20.
  • LME metals – Mostly lower. Copper -1.79%, nickel -0.46%, aluminium -0.24%

ECONOMIC DATA, NEWS & POLITICS

  • US economic data – February Existing Home Sales +11.8% to 5.51m (consensus 5.10m; prior 4.93m) although total sales were still 1.8% lower than the same period a year ago. Wholesale Inventories 1.2% (prior 1.1%)
  • Nike (-6.61%) fell after reporting underwhelming North American sales growth
  • Fed – President Trump indicated he will nominate Stephen Moore to the Fed Board of Governors
  • Trade – Trump said Trade negotiations with China were progressing and a final agreement “will probably happen”. US Trade Rep. Robert Lighthizer and Treasury Secretary Steven Mnuchin are heading to Beijing on Thursday.
  • Aussie 5 year yield lower than cash rate
  • European economic data – Flash manufacturing PMI 47.6 (expected 49.5, previous 49.3) and flash Services PMI 52.7 (previous 52.8); German flash Manufacturing PMI 44.7 its lowest level in 6 years (expected 48.0, previous 47.6) and flash Services PMI 54.9 (expected 54.8, previous 55.3). French flash Manufacturing PMI 49.8 (expected 51.4, previous 51.5) and services PMI 48.7 (expected 50.6, previous 50.2)
  • Brexit – EU leaders have offered to delay the Brexit withdrawal date until May 22 if British lawmakers approve Prime Minister Theresa May’s deal next week. In the event of another failure to pass, a delay until April 12 would be allowed.

More detail on the story that President Trump will nominate Stephen Moore to the Fed Board of Governors

Reports (from a senior administration official) sating that Trump read a column by Stephen Moore which criticised the Fed, and Trump asked “Why isn’t he the Fed Chair?”

Moore is a visiting fellow at the conservative think tank the Heritage Foundation and was a 2016 Trump campaign advisor.

The Wall St Journal article was co-written by Moore and was titled “The Fed Is a Threat to Growth.” In it, Moore argued that the “last major obstacle to staying on this path [of economic growth] is the deflationary monetary policy of the Federal Reserve.”

Feb Board has two opening and Trump has offered Moore the job. It won’t be official until he goes through a vetting process.

Previously Moore has even called for Chair Jerome Powell to resign.

Critics see some of his views as extreme: in private 2016 remarks, he said Trump could try to cut costs by eliminating the departments of Commerce, Energy and Education, among other measures.

There is the ongoing issue about Fed independence. By seeming pleased by the decision to delay more rate hikes, following months of public pressure from the president, the administration has done little to ease those concerns.

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