The rollercoaster market ride continued overnight as Wall Street rebounded with gains of around 4 per cent, setting up the Australian sharemarket for strong gains this morning.
At 7.45am, futures are pointing to a gain of 106 points, or 1.7 per cent, at the open.
1. The big swings continue: The big swings in stock markets have continued, with US equities bouncing once again overnight. It would appear on the surface, coordinated policy action from global centrals banks is beginning to settle trader’s nerves.
The VIX dropped by to the ~30 level in US trade, to trade at levels not seen in a week. That’s supported a roughly 3 per cent rally in the S&P500, while European equities registered gains of closer to 1-and-a-half per cent.
2. ASX set to rebound this morning: Wall Street’s lead is setting up the ASX200 for a jump of about 100 points at the open this morning. It follows on from the 1.7 per cent the stock market gave up yesterday, in the shadows of the fear elicited by the US Fed’s surprise 50-point rate cut during the night prior. The banks have proven the biggest drag on the ASX200 overall recently.
The RBA’s rate cut, along with lower global bond yields, has seen analysts slice their earnings forecasts for Australia’s banks.
3. Overnight US news flow positive for risk: Coronavirus news, and the clear trend higher in the number of cases ex-China now, remains the markets primary concern. However, the secondary news-flow was, on aggregate, supportive of market sentiment overnight.
Investors appeared to welcome Joe Biden’s success in yesterday’s “Super Tuesday” Democratic caucuses. US Non-Manufacturing PMI smashed expectations, and alleviated some concerns about US business activity. And US ADP jobs data hinted a slightly stronger US labour market last month than previously thought, ahead of US Non-farm Payrolls data.
4. Bank of Canada cuts rates 50 bps: The Bank of Canada met last night, and was the latest cab off the rank to cut interest rates. The BOC sliced its key short-term rate by 50 basis points, keeping pace with the equivalent “emergency” rate cut enacted by the US Federal Reserve the night earlier.
The central bank stated it took the decision to manage the “material negative shock to the Canadian and global outlooks” from the coronavirus. The USD/CAD lifted slightly on the news, to gain 0.2 per cent overnight.
5. Markets still priced for more rate cuts: The markets aren’t in the clear yet, with implied volatility still pointing the high potential of big price swings. Ultimately, it appears sentiment hinges on central banks coming to the table with further policy support.
With the BOC, RBA and Fed having done their bit, markets are looking for the next central bank to cut rates. The tip is the next in line is the BOE, with traders hoping that a speech from Governor Mark Carney tonight will flag the BOE’s own emergency rate cuts.
6. AUD receives leg-up from GDP: The Australian Dollar was given another leg-up yesterday, following the release of the December quarter’s GDP data. The Aussie pushed back through the 66-cent mark, after annualised GDP was shown to have expanded 2.2 per cent for the quarter, over and above the 2.0 per cent estimate.
Though the news was somewhat welcomed by AUD bulls, the data was largely passed-over: it doesn’t account for any impact of the coronavirus, nor local issues like the bushfire season.
7. OPEC+ meet to discuss supply cuts: A large degree of attention will be directed to OPEC+’s extraordinary meeting, at which the cartel is set to discuss further production cuts in the face of falling oil prices amidst weaker global energy demand. OPEC+’s Joint Technical Committee suggested this week production ought to be cut by between 0.6-1.0m barrels per day, in order to stabilise markets.
Doubts remain in the market about OPEC+’s ability to agree on the cuts, with Russia reportedly reluctant to cut its output.
8. Market watch:
ASX futures up 106 points or 1.7% to 6395 near 7.45am AEDT
- AUD +0.6% to 66.16 US cents (Overnight peak 66.28)
- On Wall St near 2.52pm: Dow +3.2% S&P 500 +3% Nasdaq +2.5%
- In Europe: Stoxx 50 +1.4% FTSE +1.5% CAC +1.3% DAX +1.2%
- Spot gold +0.1% to $US1642.91 an ounce at 1.18pm New York time
- Brent crude -0.1% to $US51.79 a barrel
- US oil +0.6% to $US47.45 a barrel
- Iron ore +2.8% to $US90.99 a tonne
- Dalian iron ore +0.9% to 660 yuan
- LME aluminium +0.2% to $US1726 a tonne
- LME copper +0.3% to $US5684 a tonne
- 2-year yield: US 0.63% Australia 0.38%
- 5-year yield: US 0.72% Australia 0.40%
- 10-year yield: US 0.99% Australia 0.71% Germany -0.64%
- 10-year US/Australia yield gap: 28 basis points
This column was produced in commercial partnership between The Sydney Morning Herald, The Age and IG
Information is of a general nature only.