Banks powered a broad rally on Wall Street on the weekend, though miners tumbled after China unexpectedly lifted interest rates, sparking some concern over whether that will slow demand.
Shares of Rio Tinto fell 4.4 per cent in New York, while BHP Billiton slid 3.8 per cent as copper, nickel and zinc pulled back. In Europe, the Stoxx 600 Basic Resources index closed 2.7 per cent lower.
It may be a few weeks yet on how to better assess demand in China as mills slowly ramp output after the week-long Lunar New Year break. In addition, the impact of the rate hikes in China may need a few days to come into clearer focus.
Meantime, investors can thank Donald Trump for bolstering sentiment to start this week. Over the weekend Trump followed through with a promise to start rolling back tougher rules on Wall Street banks, renewing a rally in financial shares. The latest moves helped, at least for investors, return the focus to the president's pro-growth agenda, which of course has been sidelined by a rocky start.
Locally, it's going to be a busy week dominated by the Reserve Bank and corporate results. Today starts with data on retail sales, job ads and inflation. However, it will be the RBA's policy meeting tomorrow as well as a speech by the governor on Thursday evening and the bank's statement on monetary policy on Friday that will be in focus. No rate change is expected though a revised inflation forecast is.
Today's Agenda
Local data: Retail sales December, ANZ job ads January, Melbourne Institute inflation January; NZ holiday
NAB: Monday's Retail Sales report will reveal December monthly sales and real quarterly growth. Other data points (this week) include the AiG PCI Construction index and weekly Consumer Confidence on Tuesday, followed Thursday by HIA New Home Sales, the NAB Q4 Business Survey then Housing Finance Approvals on Friday.
Thursday's RBNZ Monetary Policy Statement is the main event across the Tasman, with OCR guidance the key watch point. Tuesday afternoon's sees the RBNZ's survey of inflation expectations, followed by the latest GDT dairy auction in the early hours of Wednesday.
Overseas data: German factory orders December
Market Highlights
SPI futures up 24 points or 0.4% to 5596
AUD +0.4% to 76.83 US cents
On Wall St, Dow +0.9%, S&P; 500 +0.7%, Nasdaq +0.5%
In New York, BHP -3.8%; Rio -4.4%
In Europe, Stoxx 50 +0.6%, FTSE +0.7%, CAC +0.7%, DAX +0.2%
Spot gold +0.4% to $US1220.30 an ounce
Brent crude +0.3% to $US56.74 a barrel
Iron ore
LME aluminium +0.3% to $US1835
LME copper -1.9% to $US5772 a tonne
10-year bond yield: US 2.46%; Germany 0.41%; Australia 2.79%
From Today's Financial Review
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Alibaba Australia considers selling apartments
United States
A one-day rally in financial stocks on Friday helped push US equities into positive territory for the week after the S&P; 500 Index spent most of the period fluctuating between gains and losses against the backdrop of a slew of executive orders by President Donald Trump. Specifically Trump signed directives aimed at reducing regulation on banks and examining the Dodd-Frank rule.
JP Morgan Chase shares closed up 3.1 per cent at $US87.18 as the biggest boost to the S&P; 500 and helped push the S&P; bank index up 2.6 per cent.
The Dow Jones Industrial Average rose 186.55 points, or 0.9 per cent, to close at 20,071.46, the S&P; 500 gained 16.57 points, or 0.7 per cent, to 2297.42 and the Nasdaq Composite added 30.57 points, or 0.5 per cent, to 5666.77.
Friday's gains helped the indexes recoup most, if not all, of the losses from earlier in the week. The S&P; and Nasdaq each gained 0.1 per cent while the Dow shed 0.1 per cent.
January's 227,000 increase in payrolls followed a 157,000 rise in December, a Labor Department report showed over the weekend. The median forecast in a Bloomberg survey of economists called for a 180,000 advance. The jobless rate rose to 4.8 per cent, and average hourly earnings grew 2.5 per cent from January 2016, the weakest since August.
Compared with December, worker pay increased 0.1 per cent. Overall wage gains were depressed by a 1 per cent drop in pay in financial industries.
Europe
The Stoxx Europe 600 Index rose 0.6 per cent to 364.07 in a broad-based rally. Only the basic-resources sector lost ground, with mining stocks dropping along with metal prices following lower-than-expected China macroeconomic data. The Euro Stoxx 50 Index added 0.6 per cent, moving further away from a key support level representing its 50-day moving average.
The euro-area economy started the year on a solid footing, with rising orders bolstering job creation, according to IHS Markit. A composite Purchasing Managers' Index remained at 54.4 in January - the highest since 2011.
European mining stocks bucked the trend, with the Stoxx 600 Basic Resources index closing 2.7 per cent lower after Chinese economic data missed estimates and the nation's monetary policy was tightened. The sector index has been falling toward a key support level representing the 50 per cent retracement of the index's slump from the peaks of 2011 to the lows of early 2016.
Germany's government said on Friday it remained united on the need to stabilise the Greek economy despite indications of divergent views between Chancellor Angela Merkel's conservatives and their Social Democratic coalition partners.
Asia
Chinese stocks fell on the only trading day of the week as the central bank raised interest rates in open-market operations. The Shanghai Composite Index retreated 0.6 per cent to 3140.170, led by energy and financial shares.
The Hang Seng China Enterprises Index slumped 1.6 per cent in Hong Kong while mainland financial markets were closed for the Lunar New Year holidays, and fell 0.1 per cent on Friday.
The People's Bank of China boosted the cost of some shorter-term repurchase agreements for the first time since 2013. The PBOC raised the costs of seven-, 14- and 28-day reverse repurchase agreements by 10 basis points each to 2.35 per cent, 2.5 per cent and 2.65 per cent, respectively. This is the first increase since 2013 for the two shorter tenors, and the first such move since 2015 for the 28-day contracts.
The PBOC also increased the rate on funds lent via its Standing Lending Facility to 3.1 per cent from 2.75 per cent, according to people familiar with the matter who declined to be identified because they're not authorised to speak publicly.
In Tokyo, the Nikkei was flat at 18,918.20 points after traversing positive and negative territory. The benchmark index fell 2.8 per cent this week.
The broader Topix gained 0.3 per cent at 1514.99.
Currencies
The Bloomberg Dollar Spot Index slipped 0.1 per cent on Friday in New York, capping a 1.2 per cent weekly drop. The measure has fallen six straight weeks, the longest slump since August 2010.
As for when will the Fed move, the debate continues:
Wage data may slow Fed hikes: Mohamed El-Erian said lacklustre wage growth in the US may prompt the Fed to pause before raising interest rates again.
Federal Reserve Bank of San Francisco president John Williams said raising interest rates in March might make sense at a time when the balance of risks is shifting toward the upside, and reiterated that three hikes this year is a reasonable guess. "From a risk management point of view, there's an argument to move sooner, rather than wait," he said.
Earlier on Friday, Chicago Fed president Charles Evan said that though he foresaw two rate hikes this year when he submitted his projection in December, "the way things are going, I could see three hikes. I could be comfortable with that".
In a report released on Friday in New York, Citigroup said: "Our baseline forecast continues to be for two rate hikes this year – most likely in June and December. Even in a three-rate-hike scenario we are inclined to think the Fed is more likely to push those hikes toward the end of the year given the substantial unknowns regarding fiscal policy."
Trump currency volatility fades: Falling volatility in currency markets suggests traders are getting used to the rhetoric in President Donald Trump's tweets.
Mexico's currency has surged 5 per cent to lead global gains since Trump's inauguration two weeks ago. The frequency of Trump's tweets may in fact be creating an echo chamber that's reduced their influence on the market, according to Andrew Stanners, an investment manager at Aberdeen Asset Management, which has $US11 billion in emerging-market debt and has a "small" overweight on Mexican assets.
Commodities
In its latest Metals Chart Book, Capital Economics had this comment on iron ore and steel: "Stocks of iron ore at China's ports rose again in January, but failed to dent the ongoing rally in prices. China's imports were still growing in December and exports from Australia's Port Hedland reached a new record. What's more, anecdotal reports suggest that exports remained high in January.
"The strength in Chinese steel prices is partly a reflection of the rise in input costs, notably iron ore and coking coal. It is now clear that higher prices are encouraging production globally, not just in China."
Benchmark copper on the London Metal Exchange closed down 1.9 per cent at $US5772 a tonne, the weakest since January 23 and the third straight loss. It fell nearly 1 per cent on Thursday.
Nickel prices also fell, but were still on track for a 7-per cent weekly gain after the Philippines said it would permanently close half its nickel production. LME nickel ended 1.6 per cent weaker at $US10,225 a tonne, recovering from a low of $US10,025, as Chinese markets reopened after a week-long break.
The Philippine move will potentially result in a loss of 50,000 tonnes of supply in the global nickel market and deepen this year's supply/demand deficit to 97,000 tonnes, said Jim Lennon, senior commodities consultant with Macquarie. "A moderate deficit becomes a significant deficit," he said in a note. "The immediate impact of such a programme of closures will be to raise nickel ore prices."
Aluminium added 0.3 per cent to close at $US1835, zinc shed 1.9 per cent to close at $US2796, lead declined 0.6 per cent to $US2325 and tin, untraded in closing rings, was bid down 0.4 per cent to $US19,765.
Oil prices rose after the United States imposed sanctions on some Iranian individuals and entities, days after the White House rebuked Tehran for a ballistic missile test.
Brent crude futures settled 25 cents higher at $US56.81 a barrel, giving it a 2 per cent gain on the week, the first significant weekly rise this year. Volume in US crude futures on Friday was relatively low, with about 440,000 contracts changing hands by late afternoon trade in New York, short of the 200-day moving average of 528,000 contracts a day.
Australian Sharemarket
The S&P;/ASX 200 index experienced the largest single-week fall since November, with broad losses across every sector except utilities leading the market to finish at 5621.6 on Friday, down 1.6 per cent on last weeks' close. The broader All Ordinaries was down by a similar proportion over the five trading days. On Friday, the ASX reversed early gains to finish down 0.4 per cent.
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The market on Friday was led lower by the big miners as Chinese traders returned from New Year holidays and dumped commodity futures. Rio Tinto lost 4 per cent over the session, while BHP shed 3.1 per cent. The big miners dropped 4.9 and 4.8 for the week respectively. Fellow miner Fortescue was down 4.6 per cent for the day and 2.7 per cent for the week
The big four banks all finished lower for the week, while the sector as a whole shed 1.5 per cent.
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with Reuters, Bloomberg, AAP
Comments? Questions? Let us know what you think of Before the Bell. You can reach Timothy Moore at timothy.moore@fairfaxmedia.com.au
