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Morning Market 24 January 2017

ASX Market Open Indicators

S&P/ASX 200: SPI: 5,584.0 (+18 or 0.3%): A small Tuesday morning Australian stock market rally is predicted by the SPI, despite forex and bond volatility prompted by building flow of Trump policy pronouncements.

US Equities Markets

At the close: Dow: 19,799.85 (down 27.40 or 0.1%); S&P 500: 2,265.20 (down 6.11 or 0.3%); NASDAQ: 5,552.95 (down 2.39 or 0.0%).

The three major US equities benchmarks were a little lower by the end of Monday trading, after early attempts to hold steady faded. This as policy pronouncements by the new (and evolving) Trump administration have started to flow. President Trump signed an executive order to withdraw from the 12-nation Trans-Pacific Partnership accord. This Asia-Pacific accord, which has been years in the making, was championed by a bevy of US companies, Nike Inc and Wal-Mart Stores Inc included and other groups, such as farmers. Australian PM Turnbull, who has regularly implored the US to agree to the accord, will be miffed. Some Republicans were also displeased, with Senator John McCain warning that walking away from the TPP accord would water down the US’s strategic position in Asia, a void that could quickly be filled by China. Trump will now likely turn his attention to a reworking of the long-time NAFTA deal with Mexico and Canada. He also Monday promised (1) the imposition of a "very major" border tax on companies that move jobs currently in the US offshore and (2) a 75% wind back in regulatory red tape. The US TPP withdrawal announcement prompted a softer greenback as well as rallies in both gold and Treasuries.

The S&P 500’s slight Monday fall came on the back of negative contributions from six of its 11 industrial sectors. The biggest decliners were Energy (-1.1%), Industrials (-0.7%), Financials (-0.6%), Utilities (-0.5%) and Health Care (-0.5%). The three S&P 500 sectors managing meaningful gains in Monday business were Real Estate (+0.6%), Telecoms (+0.5%) and Materials (+0.2%). On the December quarter results front, McDonald Corp’s slipped by 0.8% on news that same-store sales at its US-based restaurants had fallen short of market expectations – perhaps consumers are growing tired of all day breakfasts! Halliburton dropped by almost 3% despite its pre one offs December quarter earnings bettering analyst projections, as investors fretted that the company was not keeping pace with the revival currently apparent in the US fracking market segment. EBay Inc lost some support on press reports that the Company’s big online auto parts business was coming up against increased competition from Inc (Amazon launched Amazon Vehicles in 2016, a website that allows shoppers to research car specifications and upload details of their own experiences with specific cars).

US Treasuries Markets

US Treasuries yields rallied 5-8 basis points in Monday trading, as the flow of economic initiatives by the newly installed Trump administration cranked up. They did however bounce off intraday lows – the 10-year Treasury note yield was momentarily 2.38% - in the wake of some hawkish monetary policy-related comments by Richmond Fed President Jeffrey Lacker.

Commodities Markets

Crude oil prices went lower in Monday New York trading, despite a softer greenback on the day. A contributing factor to this retreat was the latest round of Baker Hughes Inc-compiled rigs data, which revealed a further boost in operating US rigs (the total rose by 29 in the latest week’s report). The price falls came despite Iraq’s Oil Minister saying that his country had reduced its supply by 180,000 barrels a day and planned a further slight decline of around 30,000 barrels by the end of January.

Spot US$ gold prices were again modestly higher in Monday New York trading, as investors fretted over a lower greenback and protectionist policy decisions by the newly installed Trump administration. However palladium prices gave back a slice of their Friday surge. Most base metals also rallied in Monday LME trading, aided by President Trump’s reiteration that US economic growth would be higher under his administration (tin was the exception to the rule here).

European Equities Markets

All the major country European bourses went lower in Monday trading, led by a 1.4% drop in the OMX Stockholm 30 benchmark. Assicurazioni Generali SpA has acquired voting rights equivalent to about a 3% stake in lender Intesa Sanpaolo SpA, with many market followers seeing the move as possible defensive play on talk that Italy’s biggest insurer was being stalked, potentially by Intesa and Germany’s Allianz SE. The Brexit-related sparring between the UK and the EU are set to continue, with reports emerging that UK officials would soon commence trade negotiations with countries outside of the EU, despite warnings such action would be illegal. UK PM May still intends to trigger the formal process for leaving the EU by the end of March. If the UK Supreme Court rules against PM May’s intention to set in train Brexit, she could rush a short bill through Parliament to trigger the EU exit process by her self-imposed 31 March deadline. The Stoxx 600 slipped by 0.4% in Monday trading, led by declines in its Energy (-1.4%), Financials (-1.4%), Info Technology (-1.1%), Telecoms (-1.1%) and Health Care (-1.0%) sectors. The latter benchmark is now back at lows last seen in December.

Currency Markets

The US$ was again unloved in Monday New York trading as news filtered through that the Trump administration was walking away from the Trans-Pacific Partnership trade accord. The greenback was also sold down on reports Trump would soon announce a renegotiated NAFTA (this is the long-time trade agreement between the US, Canada and Mexico) and was considering the introduction of a prohibitive border tax. The ICE US$ index retreated by around 0.5% in Monday business. The US$ would have gone still lower but for some hawkish monetary policy-related comments by Richmond Fed President Jeffrey Lacker. Despite another day of greenback selling as Trump edicts flustered forex traders, many forecasters still expect the euro/US$ rate to move towards parity over coming months. The A$ pushed above US$0.7585 for a short time in Monday New York trading before settling back to around the US$0.757 mark.

Economic Releases

No Major US Economic Statistics Were Released in Monday Trading.

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