President Donald Trump's first budget outline, calling for a security-heavy realignment of federal spending, drew resistance from his fellow Republicans in the US Congress as many balked at proposed deep cuts to diplomatic and foreign aid programs.
Conservatives have plenty to like in the White House plan, with its 10 per cent increase in military spending next year and beefed-up funding to help deport more illegal immigrants and build a wall on the border with Mexico.
It also takes steps to downsize government, a central goal of conservatives.
But the gaze into Trump's priorities for the next four years proved too savage for many Republicans' taste, foreshadowing an intense battle between Congress and the White House over spending in coming months.
Although Republicans control both the Senate and House of Representatives, Congress holds the federal purse strings and seldom approves presidents' budget plans.
The administration asked Congress for a 28 per cent, or $US10.9 billion, cut in State Department funding and other international programs to help pay for a 10 per cent, $US54 billion hike in military spending next year.
"These increases in defence come at the expense of national security," said Republican Senator Lindsey Graham, who has not hesitated to take on Trump. Republican Senator Marco Rubio, who like Graham ran unsuccessfully for president in 2016, levelled similar sentiments, as did some prominent Republicans in the House of Representatives.
House Speaker Paul Ryan sidestepped reporters' questions about whether he supported State Department cuts, saying the White House blueprint was just the start of the budget process.
The blueprint, a partial budget request that presidents typically release in their first months in office, doesn't account for his proposals to cut taxes, resolve internal Republican disputes over entitlement spending, or reveal what the White House forecasts for economic growth. That is to come as part of a larger document in May.
OPEC and its allies may prolong production cuts after they expire in June if the world's crude inventories remain excessive, Saudi Arabia's Energy Minister says.
The curbs will be sustained if stockpiles are "still above the five-year average, if the markets are still not confident in the outlook, if we don't see companies and investors feel good about the health of the global oil industry," Khalid Al-Falih said in a Bloomberg interview. "We want to signal to them that we're going to do what it takes to bring the industry back to a healthy situation."
The Organisation of Petroleum Exporting Countries will meet on May 25 to decide whether to continue its production cuts, aimed at ending a slump that battered the economies of energy exporters around the world. The strategy is moving global markets in the "right direction" and fundamentals have improved considerably, Al-Falih said.
So far, Saudi Arabia has shouldered the bulk of OPEC cuts, trimming February output to 10.011 million barrels a day, which is below the ceiling imposed by the agreement. OPEC output in February was 1.39 million barrels a day lower than its reference level.
But among the 11 non-members joining OPEC in the accord, compliance is lagging. Led by Russia, the countries reduced their February output by 240,000 barrels a day from October-November levels, or 43 percent of their promised 558,000-barrel reduction.
Dutch banking giant ING's Australian arm expects to increase lending to housing investors this year, allowing it to gain market share as the big four banks pull back for fear of breaching regulatory caps, chief executive Uday Sareen says.
ING is Australia's fifth-largest retail bank when it comes to household savings balances and mortgages. It's now looking to gain ground on its bigger rivals with investor loans and new products like insurance, credit cards and personal loans.
Its past focus on owner-occupier mortgages means it can increase its investor book while rivals including Commonwealth Bank are restricted from doing so as they risk breaching rules limiting growth in investor loans to 10 per cent.
"I don't think we'll be contracting (this year)," Sareen said of ING's investor loan book in an interview. "Our investor share is below 2 per cent. If you have that kind of market share and some of our larger competitors considerably slow down, there is still volume coming through."
Shares have opened flat, with gains in the big banks offset by losses in energy stocks and some miners as sectors reverse some of yesterday's moves.
The ASX is up 5 points at 5791.1, on track for a small weekly gain.
Caution is the watchword in early Asia Pacific trading today, says CMC chief market strategist Michael McCarthy.
The big banks are all around 0.2 per cent higher, following some gains among their US peers, which had dropped sharply the previous session after global bond yields fell.
The miners, meanwhile, are mixed, with BHP down 1 per cent, the biggest drag on the index, and Fortescue slipping 0.5 per cent, while Rio is up 0.6 per cent.
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Money is getting tighter, writes IG strategist Chris Weston:
It was all about the Federal Reserve on Thursday, although there is still some conjecture and strong market debate as to whether the event had a hawkish or dovish tone to it.
However, as we got into the latter stages of Asian trade we saw China lift a number of its interbank tools, hiking the rate on reserve repos (the rate at which its central bank borrows money from local commercial banks on 7-day, 14-day and 28-day contracts), as well as its medium-term and short-term lending facilities.
China's central bank has been quick to detail this is not seen as a tightening of monetary policy, but in effect, these measures raise the cost for financial institutions to borrow for different maturities and it will reduce liquidity and act as a handbrake on credit expansion. One suspects a hike to its lending and deposit rates could be on its way.
Locally, NAB got much press for lifting the cost of home loans, and investors are asking which bank will be next off the rank as NAB's standard variable rate is now the highest of the big four and just shy of the Band of Queensland's. It was certainly interesting to watch prices of financial stocks on Thursday, even more so as around 11:30am traders really started selling into the banks, which obviously coincided with the soggy employment data.
CBA's US traded shares edged up 0.3 per cent, which suggests Aussie banks could actually find small buyers on the final trading day of the week.
Today's Agenda
Local data: NZ performance of manufacturing index February, ANZ consumer confidence March
Trading Ex-Div: PRY, RFG, SVW, SWM, TRS
Overseas data: Euro zone trade balance January, Euro zone construction output January; US industrial production February, US capacity utilisation February, University of Michigan confidence March, US leading indicators February, Baker Hughes weekly oil rig count
And here are the overnight market highlights:
- SPI futures down 8 points or 0.1% to 5777
- AUD -0.4% to 76.79 US cents (Overnight range: 76.64 - 77.17)
- On Wall St, Dow -0.1%, S&P 500 -0.2%, Nasdaq flat
- In New York, BHP -0.1%, Rio -0.3%
- In Europe, Stoxx 50 +0.9%, FTSE +0.6%, CAC +0.6%, DAX +0.6%
- Spot gold +0.6% to $US1226.96 an ounce
- Brent crude -0.3% to $US51.64 a barrel
- Iron ore +1.8% to $US92.61 a tonne
- Steam coal -0.7% to $US81.10, Met coal -0.2% to $US158.75
- LME aluminium + 0.7% to $US1900 a tonne
- LME copper +0.7% to $US5908 a tonne
- 10-year bond yields: US 2.54%, Germany 0.44%, Australia 2.81%
On the economic agenda:
- US industrial production and consumer sentiment tonight
Stocks to watch:
- Another boost to iron ore price overnight could boost miners..
- ...but persistent oil oversupply worries may weigh on energy names
- Blackmores fined in China for breaching advertising law
- Fletcher Building raised to buy at UBS
- Macquarie agrees to buy Cargill petroleum-trading unit, reports AFR
- OZ Minerals rated new sell at Canaccord
- Rio Tinto raised to add at Morgans Financial
- Sandfire Resources rated new hold at Canaccord
- ​Western Areas rated new buy at Canaccord
Embattled law firm Slater & Gordon has confirmed the majority of its debt has traded hands from its original lenders to distressed debt investors.
The announcement comes following reports that the law firm's major lenders Westpac, NAB, Barclays and Royal Bank of Scotland held auctions of their loans this week in which they accepted losses of up to 80 per cent on their debt.
It is understood that New York based hedge fund Anchorage, an active player in the Australian distressed debt market, will be the largest owner of the personal injury firm, which was the first legal practise in the world to float on a stock exchange.
Slater & Gordon said that it had recently been notified that in excess of 94 per cent of its debt facility has been traded. It said that they had been informed that the new owners "fully intend to implement a solvent restructure of the company" and to ensure the company has a sustainable level of debt and a stable platform for its future operations in both Australia and the United Kingdom.
Slater & Gordon said it believes the debt for equity restructure was in the best interests of all stakeholders. It said it was in confidential discussions with the new lenders about the terms of the restructure and provide an update in the coming weeks.
The euro rallied overnight following reports that ECB board member Ewald Nowotny hinted rate increases may be on the way, saying that the eurozone's central bank might move away from loose monetary policy in a different way than Fed.
Nowotny said that the US model was to finish bond purchases first, but this model might not transfer well to Europe.
"The ECB could also raise the deposit rate earlier than the prime rate," Nowotny told the paper.
Interest rates wouldn't all have to be increased simultaneously, nor to the same extent, he added.
His comments raise questions about the ECB's own guidance, reiterated only a week ago, that rates will stay at the current level, or even fall, until well after the ECB's 2.3 trillion euro bond-purchase program ends.
With inflation in the eurozone rebounding, the ECB has come under pressure, particularly from Germany, to end its policy of ultra-low rates and money printing. Some policymakers raised the possibility of a rate hike before bond purchases stop at last week's meeting, but did not receive broad support.
Asked about whether the ECB would stop buying bonds or raise rates first if the economic upswing continues, Nowotny told German daily Handelsblatt: "We will decide when the time comes."
"There is the American model to end the bond purchases first. Whether this model can be applied to Europe on a like-for-like basis would need to be discussed," he added.​
Nowotny confirmed the ECB's guidance that bond purchases would continue until the end of the year, adding there was no "reason to act at the moment."
The euro rose to $US1.0774 following the comments, its highest in nearly six weeks.
Here's also a good article on why shorting the euro may not be a great idea anymore: "For all the talk of a Europe in crisis, the EU and the euro area are holding up quite well under stress."
The Federal Reserve's return to higher interest rates could lend a hand to beleaguered counterparts in Japan and Europe and signal the end of a long cycle of monetary stimulus across Asia, as central banks from Beijing to Ankara to London reacted to the US policy change.
The Fed's widely anticipated and modest rate hike this week was only its third since the GFC. But it came earlier than investors had expected only weeks ago and it sets the stage for roughly two more hikes this year as the US economy strengthens.
China, the world's second-largest economy, responded on Thursday by raising its key policy rates to head off a weakening of its currency. That same reason prompted central banks in Saudi Arabia, the United Arab Emirates, Kuwait and Bahrain to tighten policies within 90 minutes of the Fed's announcement.
Among major economies, the Bank of Japan and the European Central Bank remain locked in an aggressive battle against low inflation and growth. And while the pair are nowhere near raising rates or tapering stimulative bond buying - as governor Haruhiko Kuroda made clear when the BOJ held policy steady - the pair has recently begun sounding more optimistic that their time will soon come.
The US dollar shot up by about 25 per cent in 2014 and 2015 as the Fed prepared to raise rates from near zero, and it has stayed elevated even while the central bank got off to a slow and halting start to tightening.
While a stronger dollar cuts costs for exporters in Japan and Europe, boosting such economies, it prompts a flight of capital from fragile emerging economies that still need monetary accommodation.
"At the very least, the Fed's desire to step up the pace of policy normalisation has changed the conversation at many central banks globally," said Sean Callow, an economist with Westpac. Further monetary easing among Asian emerging economies, he said, "is now largely seen as only if needed to 'break the glass', not a plausible baseline."
For the BOJ and ECB, however, "the Fed raising rates gives more leeway ... to do the same without it adversely impacting their currency," said Shehriyar Antia, former senior analyst at the New York Fed and founder of Macro Insight Group in New York.
Trades sparked by the Federal Reserve's dovish tone partially overnight Thursday, as US stocks slumped after the best gain in two weeks and Treasury yields edged higher following an 11-point tumble.
The US dollar slipped, while the Aussie came under pressure following yesterday's poor jobs data, fetching 76.8 US cents after pushing above 77 US cents the night before.
The S&P 500's post-Fed rally ran out of steam after the index climbed within 0.5 per cent of an all-time high. Health-care shares led declines. Treasuries fell amid steeper declines for UK bonds after the Bank of England moved closer to raising rates. The pound advanced.
European shares rose after the Dutch election eased concerns about the rise of populism, while crude slipped below $US49 a barrel.
Base metals were mostly higher in London overnight and iron ore extended its rise back above the $US90 a tonne mark with some chatter that demand for higher grade imported iron ore remained high.
The Fed raised its benchmark lending rate a quarter point without accelerating the timetable for future hikes. Chair Janet Yellen said in a press conference that the "simple message is the economy is doing well."
Investors anticipated the tightening and Treasury yields had climbed with the dollar on speculation the central bank might signal a faster pace of tightening. Those trades unwound as policy makers indicated they haven't fallen behind with efforts to keep inflation in check.
"There was some uncertainty that they might signal that they feel behind the curve, and the answer was not," Isabelle Mateos Y Lago, global macro strategist at BlackRock Investment Institute in Paris, said. "Central banks are on a reasonably predictable path on both sides of the Atlantic now."
Just hours after the Fed's decision, the BOJ left its plans unchanged, increasing the policy divergence between the two central banks. China's central bank raised borrowing costs as a stable economy and factory reflation give it scope to follow the US.
Good morning and welcome to the Markets Live blog for Friday.
Your editors today are Jens Meyer and Patrick Commins.
This blog is not intended as investment advice.
Fairfax Media with wires.
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