The ASX is poised to extend Monday's losses as global markets fell overnight. Rising political risks, mixed metals prices, a drop in the price of iron ore and a slump in the price of oil are each, and all, checking sentiment.
The reality is that global equity valuations surged higher in the wake of the US president election on November 8, the rebound in commodities prices and as investors repositioned for the current earnings season which generally has been better than expected.
Corporate profits have reappeared and the prospect of higher dividends and more share repurchases is increasing. Still, the rather rocky start to Trump's occupation of the White House is leading investors to reassess how fast he can put into effect substantive economic policies. Goldman Sachs said it now sees rising risks.
Overnight shares in BHP and Rio drifted lower in New York. Copper and nickel closed higher in London; aluminium dipped. Spot iron ore followed Chinese steel and iron ore futures lower.
Locally the focus is on what the Reserve Bank has to say in its post meeting statement. No rate change is expected. The meeting comes of course a day after retail sales for December which underwhelmed Capital Economics: "The rise in real retail sales in the fourth quarter suggests that real consumption growth rebounded, but the outright fall in nominal sales in December reveals a worrying lack of momentum heading into 2017."
And the longer-term outlook for Australia is now being questioned. Australia's relative importance in the global economy is set to dwindle rapidly over the next three decades, says PwC.
Today's Agenda
Local data: RBA policy decision at 2.30pm; AiG performance of construction January
Overseas data: China FX reserves data January, Caixin services PMI January; German industrial production December; US trade data December
Market Highlights
SPI futures down 16 points or 0.3% to 5549
AUD -0.5% to 76.45 US cents (overnight range: 76.30 - 76.84)
On Wall St, Dow -0.2%, S&P; 500 -0.3%, Nasdaq -0.2%
In New York, BHP -0.2%, Rio -0.4%
In Europe, Stoxx 50 -1.1%, FTSE -0.2%, CAC -1%, DAX -1.2%
Spot gold +0.9% to $US1230.69 an ounce
Brent crude -1.5% to $US55.95 a barrel
Iron ore -1.9% to $US80.60 a tonne
LME aluminium -0.1% to $US1834 a tonne
LME copper +1.3% to $US5847 a tonne
10-year bond yield: US 2.41%, Germany 0.37%, France 1.13%, Australia 2.76%
From Today's Financial Review
Resources ensure end of profit recession: The best earnings season in three years will be underpinned by growth in resources companies.
ATO crackdown on foreign investors: Major companies are shocked by a ATO crackdown they say will double the tax on $10 billion in foreign investment in infrastructure.
Chanticleer: Banks' advice model out of date: A stark reminder of why the integrated advice model of the major banks cannot survive.
United States
US stocks slipped in early afternoon trading on Monday in part because of uncertainty over President Donald Trump's policies.
Trump's agenda presents risks as tax cuts and infrastructure funding may boost growth, but restrictions on trade and immigration could offset their effect, Goldman Sachs economist Alec Phillips said in a note.
Ten of the 11 major S&P; sectors were lower, with the energy index's 0.91 per cent fall leading the decliners.
Tyson Foods fell 3.2 per cent to $US63.34 after the nation's biggest chicken processor disclosed it had received a subpoena from US authorities that was likely linked to price fixing.
Tiffany fell 2.8 per cent to $US78.21 as the upscale jeweler said its CEO has stepped down after what the company called disappointing financial results.
Europe
The Stoxx Europe 600 Index fell 0.7 per cent at the close, with 18 of 19 sectors lower. The benchmark index, which has moved mostly sideways this year, is up just 0.05 per cent in 2017, lagging a 2.4 per cent gain in the S&P; 500 Index. Over the weekend, prospective French presidential candidate Marine Le Pen unveiled a manifesto pledge to take the country out of the currency bloc should she win.
The Euro Stoxx 50, a gauge of euro-area shares, slid 1.1 per cent, crossing below its 50-day moving average for the first time since early December.
UniCredit began Italy's biggest corporate share sale in an attempt to raise €13 billion to rebuild the bank's capital after a balance sheet clean up. UniCredit is offering 13 new shares - at a price of 8.09 euros each - every five ordinary or savings shares already owned. The price entails a 38 per cent discount to the value of the stock, excluding subscription rights. The share offer is due to end by March 10.
European Central Bank President Mario Draghi said the euro-region economy and inflation still aren't strong enough to allow for a withdrawal of monetary stimulus, in testimony at the European Parliament.
The yield spread between France and Germany's 10-year bonds widened to its most since 2012 as the political plot thickened amid the most unpredictable French election campaign in decades.
Asia
The Hang Seng China Enterprises Index climbed 1.6 per cent to 9840.26 at close. Insurers accounted for five of the seven biggest gainers on the gauge, with China Life Insurance having its largest one-day advance since August 2015. Analysts had a range of reasons for the sudden rally, from speculation Chinese pension funds are about to enter the stock market to bets higher borrowing costs would boost investment yields.
"H shares are rallying as investors are speculating that pension funds will be allowed to invest in the stock market soon," said Linus Yip, First Shanghai Securities strategist in Hong Kong. "It's a big positive catalyst for insurers, who are managers of most of those funds, as they will be able to diversify their portfolios and investment yields will get boosted."
The Hang Seng Index rose 1 per cent, while the Shanghai Composite Index added 0.5 per cent. China Life surged 7.5 per cent in Hong Kong, while New China Life Insurance gained 6.8 per cent.
Japanese stocks advanced as bank shares boosted the benchmark gauge. The Topix added 0.4 per cent to 1520.42. The Nikkei 225 edged 0.3 per cent higher to 18,976.71.
Mitsubishi UFJ Financial Group was the biggest boost to the Topix index overall after it reported a surprise 17 per cent gain in third-quarter profit. Honda Motor gained 2 per cent after raising its full-year operating profit forecast.
Currencies
Capital Economics on China FX data: "We think that the value of China's FX reserves will have continued to decline in January and probably fell below $US3trn for the first time since 2011. We have pencilled in a figure of $US2.98trn, which would be down from $US3.01trn in December. Capital outflows appear to have eased in recent weeks, but we still anticipate sizeable PBOC FX sales of around $US30bn in January. This should translate into a similar-sized fall in the headline reserve figure as valuation effects last month are likely to have been small."
The euro fell to a one-week low against the US dollar overnight on concerns over French politics ahead of the presidential vote in April as well as other impending elections in Europe in a year of political uncertainty.
"Political risk is serving to dampen the euro after last week's stumble from the $US1.08 area," said Shaun Osborne, chief FX strategist, at Scotiabank in Toronto.
Investors were largely focused on French politics, as far-right National Front leader Marine Le Pen launched her presidential bid, vowing to fight globalisation and take France out of the euro zone.
In Italy, another presidential election looms even as former Italian prime minister Matteo Renzi said he was willing to shelve his push for early voting.
ECB president Mario Draghi on value of the euro: "First and foremost: we are not currency manipulators. Second, our monetary policies reflect the diverse state of the (economic) cycle of the euro zone and the United States."
"The single market would not survive with continuous competitive devaluations," Draghi said.
Draghi on euro zone inflation: "So far underlying inflation pressures remain very subdued and are expected to pick up only gradually as we go on. This lack of momentum in underlying inflation reflects largely weak domestic cost pressures."
Commodities
China speculators ping rubber to 5-year high: First, Chinese speculators came for iron ore and coal. Now, they're carpetbagging a different commodity: rubber.
Metal Bulletin on coking coal: "Plenty of seaborne coking coal offers are on the anvil while at least one transaction has been concluded at the start of this week on online trading platform Global Coal, according to market participants."
A 45,000-tonne cargo of unbranded materials was traded at $US169 per tonne fob Australia on Global Coal, sources told Metal Bulletin. "The tonnage probably explains the price it fetched," a seller source said. Market participants in China indicated that several seaborne cargoes had been offered to them. These consisted of premium low-vol and mid-vol coking coal, as well as second-tier materials, they said.
Copper rose as investors' focus returned to supply risks in Chile and Indonesia. Three-month copper on the London Metal Exchange ended up 1.3 per cent to $US5847 a tonne. The metal lost 1.9 per cent on Friday in its biggest daily fall since December 19 on worries over Chinese policy tightening.
Nickel ended up 2.2 per cent at $US10,450 a tonne.
Zinc, used to galvanise steel, closed 0.1 per cent down at $US2792, hurt by the rise in China's interest rates that spurred a sell-off in ferrous metals.
Lead ended up 1 per cent at $US2348, tin was down 2.8 per cent at $US19,220, having earlier hit its lowest since last September at $US19,100, while aluminium finished 0.1 per cent down at $US1834.
Australian Sharemarket
Tech IPOs best performers on ASX: Tech stocks that listed on the ASX in 2016 have comfortably outshone their counterparts in their first year of public life.
An early rally in the big banks ran out of puff on Monday, helping to push the local sharemarket into the red as steep drops in miners and poor local retail sales data took their toll on sentiment.
The S&P;/ASX200 index slipped 0.1 per cent to close at 5615.6, despite opening 0.7 per cent higher following big jumps in US financial stocks on Friday after the Trump administration moved to roll back banking rules implemented after the 2008 global financial crisis.
Street Talk
Rothschild lures David Acton, steps up equity advice: Rothschild Australia has tapped former Goldman Sachs head of equities David Acton as the firm steps up its presence.
AirTree Ventures ups its bets on pets, Mercury Capital divests: Venture capital firm AirTree, led by high-profile tech investors Daniel Petre and Craig Blair, has emerged as the buyer of a stake in online retailer Pet Circle.
Credit Suisse on hand as Beach Energy eyes Origin asset offer: Credit Suisse bankers are believed to be cosying up to Beach Energy as the oil and gas company runs the numbers on a bunch of Origin Energy assets.
with Reuters, Bloomberg, AAP
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