The local sharemarket is set to drift lower at the open, following global markets down as investor caution returned.
1. Oil fall: The market that got the bulk of the attention has clearly been US and Brent crude, with price falling 2.5% on the session and breaking to the lowest levels since November 2016 on the front month futures contract. There has been little news that I have seen that has driven price down so heavily, and while we have seen the Saudi crown prince Mohammed Bin Salman talking about a desire to see price hold $US45, on the whole, he didn’t say much that was overtly negative for the barrel. Importantly, some buying has come into the barrel though from 06:30 aest after the API inventory report showed a sizeable 4.2 million barrels draw in US crude inventories and a 400,000 draw in gasoline inventories. This clearly offers downside risks to the official (Department of Energy) weekly inventory report, with estimates thus far that we will see a draw of 3.055 million and 1.77 million build in US crude and gasoline inventories respectively.
Will bank earnings drive the ASX 200 towards 6000?
With ANZ, NAB, MQG and WBC all reporting earnings in the days ahead, will the numbers and outlook breathe further life into a sector that is clearly outperforming. (This video was produced in commercial partnership between Fairfax Media and IG Markets).
2. Apple disappoints: Apple has guided to Q3 revenues of $US44.5 billion (if we use the mid-point of their range), which is below the consensus of $US45.7 billion. Guidance around Q3 gross margins also seems a little soft at 37.5% to 38% (consensus at 38.3%), as does operating expense guidance at $US6.6 to $US6.7 billion. We also a sizeable 50.8 million iPhones sold in Q2, although again this was below consensus estimates. Apple is down 2.4% in the post-market, although some focus now also turns to Tesla and Facebook, which have both performed very well of late.
3. ASX: Turning to Asia, and we see the ASX 200 opening unchanged at 5950, with little move seen in the SPI futures. Bank shares led a retreat yesterday, putting 6000 a little further out of reach for the time being.
4. Stocks to watch: Energy could weigh, although the API inventory report could give a sense that we may see better support to the barrel in the session ahead. BHP’s American Depository Receipt (ADR), which has closed down 1.2%. WPL’s ADR is down a more modest 0.3%, while we are seeing support in CBA’s ADR, which is interesting given ANZ’s results yesterday. Keep an eye on S&P 500 and NASDAQ futures today as they could be an important guide given Apple’s guidance.
5. US: One could say that the below-forecast total US vehicle sales at 16.81 million (vs consensus at 17.10 million) could be seen as a tailwind for the oil move, although price was already moving prior to the data release. Certainly, the poor vehicle sales print can be added to a growing list of below par US data points of late and that will almost certainly be a theme the Federal Reserve will explore in tomorrow’s (04:00 AEST) FOMC statement. Recall, Q2 is shaping up to be in far better shape and we are already seeing calls from economists for growth north of 3%. The Atlanta Federal Reserve’s model (for what it’s worth) is calling for Q2 GDP at 4.27%. This seems a little high however and will likely be revised lower. Keep in mind that we also get the ADP private payrolls report (175,000 jobs expected) at 22:15 aest, which will again set the bar for Friday’s non-farm payrolls. We also get the services ISM report (00:00 aest), with analysts keen to see employment sub-component of this data point, while the new orders and new export orders sub-component are worth viewing.
6. FOMC focus: We go into the FOMC meeting though with the US yield curve flattening a couple of basis points overnight, with the US ten-year Treasury lower by three basis points on the session at 2.28%. The market to watch is the five-year Treasury, as this is sensitive not just to pricing around potential rate hikes over the coming years, but also how the Fed plan to allow its balance sheet to fall and normalise. Traders have been playing a range of 1.87% to 1.80% in the five-year Treasury, so a break tonight (either side) could be telling for views on futures monetary policy and where the Fed lye. Keep in mind the interest rate markets are pricing a 60% chance of a hike from the Fed in June, so this could move depending on the tone of the statement.
7. Currencies: We also go into the meeting with the US dollar index oscillating around the 99 handle, and we can see consolidation in the price after the falls in April. GBP/USD continues to move higher, but if traders are buying USD’s at the moment then they are doing so against the JPY and CAD, with the latter naturally being thrown around by moves in the crude price. AUD/USD has traded in a range of $US0.7556 to $US0.7511 and again traders have been best placed buying AUD against the CAD, with AUD/CAD hitting C$US1.0345 –the highest level since 10 November. A close above C$US1.0345 will bring out a wave of the momentum focused buyers. Another aspect the Fed really have to acknowledge is the extremely accommodative financial conditions, which in their eyes should have responded far more intently to a 50bp increase in the fed funds rate. Clearly, the improvement (in broader financial conditions) here has been driven by tighter credit spreads and US equity markets hitting all-time highs or approaching them. Earnings have been at the heart of this feel-good factor, although Apple has caused a 0.3% move lower in the NASDAQ futures and will likely weigh on futures when they re-open shortly.
8. Market watch:
SPI futures down 4 points or 0.1% to 5930
AUD +0.1% to 75.31 US cents (Overnight range: 75.11 – 75.56)
On Wall St, Dow +0.2%, S&P 500 +0.1%, Nasdaq +0.1%
In New York, BHP -1.3%, Rio -0.6%
In Europe, Stoxx 50 +0.5%, FTSE +0.6%, CAC +0.7%, DAX +0.6%
Spot gold flat at $US1256.65 an ounce
Brent crude -2.2% to $US50.40 a barrel
Iron ore slips 8 US cents to $US68.72 a tonne
Dalian iron ore +0.8% to 535 yuan
LME aluminium +0.9% to $US1929.50 a tonne
LME copper +1.2% to $US5735.50 a tonne
10-year bond yield: US 2.29%, Germany 0.32%, Australia 2.60%
This column was produced in commercial partnership
between Fairfax Media and IG