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Morning Market 24 February 2017

ASX Market Open Indicators

S&P/ASX 200: SPI: 5,750.0 (-9 or 0.2%): A cautious start is likely, post mixed trends overnight in non-rural commodity prices; today’s profit announcements include CHC, PTM and CTD; stocks going ex-div today include AMC and CPU; RBA Governor’s testimony of interest.

US Equities Markets

At the close: Dow: 20,810.32 (up 34.72 or 0.2%); S&P 500: 2,363.81 (up 0.99 or 0.0%); NASDAQ: 5,835.51 (down 25.12 or 0.4%).

US stock markets were mixed by the end of Thursday trading, after recovering from some selling pressures apparent earlier in the day. While the Dow finished marginally higher, the S&P 500 tread water and the NASDAQ recorded a modest interday decline. The economic stats issuing on the day, specifically the January Chicago Fed national activity index and December FHFA house price index reports, were a touch below market expectations. However both releases are in the main less closely watched by financial markets. What did grab investors’ attention though was a comment by Treasury Secretary Steven Mnuchin that any fiscal stimulus implemented by the Trump administration would have a limited effect on the US economy in calendar 2017 (and would not seriously feed into the economy until late 2018).

The S&P 500 tracked sideways, despite gains in seven of its 11 sectors. Falls in its Industrials (-0.8%), Consumer Discretionary (-0.7%) and Materials (0.6%) sectors broadly offset the boost provided by gains in its Utilities (+1.1%), Telecoms (+1.0%), Health Care (+0.7%) and Real Estate (+0.6%) sectors. Many construction-related companies lost some ground on increased market talk that Congress could prioritise the repeal of Obamacare, corporate tax reform, budget/debt limit issues and the appointment of a new Supreme Court judge over any infrastructure spending-related legislation. This weekend sees iconic investor Warren Buffett release his annual letter to Berkshire Hathaway Inc shareholders.

US Treasuries Markets

US Treasuries yields rallied by 2-4 basis points in Thursday trading. The US$28bn 7-year note auction held on the day went at 2.197% (primary dealers took up a larger than usual 25% of this paper).

Commodities Markets

Crude oil prices rallied in Thursday New York trading, after the latest Energy Information Administration-compiled inventories report had US oil stockpiles rising by just 0.56m barrels last week (the market was expecting a circa 3.25m barrel advance). Refinery oil demand dropped as seasonal maintenance was performed. At the stock-specific level, Chesapeake Energy Corp dropped by 9% after announcing yet another loss in its December quarter.

Spot gold prices booked good gains in Thursday new York trading, as the US$ edged lower and US Treasury Secretary Mnuchin blithely proclaimed that low interest rates should persist (but what is his definition of low?)

Base metal prices tanked in Thursday LME trading – copper dropped by 3% on the day - on an evolving view that any kicker to commodity demand from increased US infrastructure spending would not come through until next year. This as Congress has to work through other priorities (including the repeal of Obamacare, corporate tax reform, budget/debt limit issues and the appointment of a new Supreme Court judge).

European Equities Markets

European bourses were mostly lower by the end of their Thursday sessions. Amongst the major country benchmarks, only the IBEX 35 and OMX Stockholm 30 indexes managed gains on the day. Declines in many Financials and Materials sector stocks provided a drag. This negativity overshadowed some positive stock-specific stories, with both Telefonica SA and construction group Bouygues SA rallying after their latest results got the nod from investors. Italy’s number-one bank, UniCredit SpA, indicated that its shareholders have committed to take up almost all the bank’s recently announced 13bn euro rights offering, providing some hope that the its turnaround plan will be progressed (fingers crossed!) Key advisors to French presidential candidate Marine Le Pen have reportedly met with strategists and analysts from a host of financial institutions, BlackRock Inc, Barclays Plc and UBS Group AG included, to explain their economic program and plans to withdraw France from the euro. The Stoxx Europe 600 slipped by 0.1% in Thursday trading, taken into negative territory by falls in its Materials (-1.0%), Financials (-0.7%) and Health Care (-0.4%). On the flip side of the coin, Telecoms (+0.6%) sector stocks found some support.

Currency Markets

The greenback again edged lower in Thursday New York trading, with the ICE US$ index falling by a further 0.2% on the day. Some forex market players were unimpressed by a comment from Treasury Secretary Steven Mnuchin that any fiscal stimulus implemented by the Trump administration would have a limited effect on the US economy in 2017. Mnuchin also hinted that there was no rush to paint China as a currency manipulator. He wanted to regularly review happenings in forex markets to determine whether other countries were playing currency games. He added that no announcement on currency manipulation will come before the US Treasury’s April report. (During his presidential election campaign, Donald Trump said he would direct his Treasury secretary to name China a manipulator on the first day of his administration.) The A$ retreated by around 0.25 US cents to around US$0.7665 following the release of December 2016 quarter capex statistics that did not back up the thesis that overall Australian business investment levels were trending higher (the latter data only hinting that services-related investment was finally taking up some of the slack left by the sustained drop-off in mining related capex). The Aussie did bounce back in subsequent overnight trading though, peaking at around US$0.774 in Thursday New York business. While some profit takers moved in at this point, our currency still held above US$0.77, and has started our Friday around US$0.7715. Near-term, A$ trading could be impacted by RBA Governor Lowe’s testimony to the House of Representatives’ Standing Committee on Economics, which kicks off at 9.30AM AEDT today.

Economic Releases

January Chicago Fed National Activity Index. This Chicago Fed-prepared report, which aims to identity emerging recession or inflationary pressures, slipped to -0.05 in January, from an upwardly revised +0.18 in December (initially reported as +0.14). The fall down seen in January was not too far from market expectations, with the Bloomberg consensus forecast 0.00. Digging deeper, 36 of the 85 monthly indicators making up the index provided positive contributions in January, while the remaining 49 indicators made drags. While the sub-zero January headline reading hints at below-trend growth in national economy, this indicator has shown gradual improvement over more recent times, after being below -0.5 over some months across the mid-2016 period.

December FHFA House Price Index. The Federal Housing Finance Agency (FHFA)-compiled US house price index increased by a slightly lower than expected 0.4% in December, after a quite robust 0.7% gain in November (which was up on the 0.5% print initially reported). Economists were forecasting a circa 0.5% increment over the last month of 2016. The US regions enjoying the largest intermonth increases were East South Central (covering Alabama, Kentucky, Mississippi and Tennessee, +2.1%) and East North Central (covering Illinois, Indiana, Michigan Ohio and Wisconsin, +0.9%). The only region suffering a material price decline over December was Middle Atlantic (covering New Jersey, New York and Pennsylvania, -1.1%).

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