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Morning Market 30 March 2017

ASX Market Open Indicators

S&P/ASX 200: SPI: 5,865.0 (+5 or 0.1%): Again the SPI tips at little movement in our market over Thursday morning business, although we have recently moved independent of US trends; ex-div stocks today include APN, CAB, PNC, SLK plus some LPTs.

US Equities Markets

At the close: Dow: 20,659.32 (down 42.18 or 0.2%); S&P 500: 2,361.13 (up 2.56 or 0.1%); NASDAQ: 5,897.55 (up 22.41 or 0.4%).

The three major US equities benchmarks were mixed by the end of their Wednesday sessions, as some buying interest eventually materialised. While the Dow edged lower on the day, both the S&P 500 and NASDAQ eked out slight gains. The National Association of Realtors (NAR)-compiled pending home sales index surprised on the upside in February, with its solid advance in part attributed to a rush by home buyers to get into the market ahead of any further increases in fixed mortgage rates on the back of rising Treasuries yields. Investors were not overly fussed by some hawkish Fedspeak out on the day - San Francisco Fed President Williams and Boston Fed President Rosengren both hinted at the possibility of a more aggressive than currently expected tightening cycle.

The S&P 500 was slightly higher at the close, despite gains in just five of its 11 industrial sectors. The highlights were Energy (+1.2%), Consumer Discretionary (+0.6%), Real Estate (+0.3%) and Info Technology (+0.2%). The S&P 500 sectors suffering the largest falls over Wednesday business were Financials (-0.5%), Utilities (-0.5%) and Telecoms (-0.2%). The Dow was pushed into negative territory by 0.8%+ falls in UnitedHealth Group Inc, Travelers Cos Inc and Cisco Systems Inc. In M&A news, Cenovus Energy Inc will effectively double its reserves and production by buying Canadian-based assets from ConocoPhillips for C$17.7bn. Combined, the acquired assets have forecast 2017 production of nearly 0.3m barrels of oil equivalent a day. Apple Inc was little changed on the day as Samsung Electronics prepared the way for the unveiling of its all-new galaxy S8 smart phone, which will include taller, curved screens, encrypted facial recognition, system-wide voice control and the ability to turn into a desktop computer. Apple’s competitive response will not occur until later this year, with the launch of the tenth anniversary iPhone.

US Treasuries Markets

US Treasuries yields rallied by 3-4 basis points in Wednesday trading – this despite the better than expected February pending home sales data out on the day. The US$28bn 7-year note auction held on the Wednesday went at 2.215%, with it highlighted by strong support from indirect bidders (the latter category, which includes foreign central banks, took 71% of the auction).

Commodities Markets

Crude oil prices advanced in Wednesday New York trading, after the latest US Energy Information Administration report revealed a surprise 3.75m barrel drop in American gasoline supplies last week. At the same time, crude stockpiles climbed by a lower than forecast 0.87m barrels (to 534m barrels) in the latest week. According to o cargo-tracking company Kpler SAS, OPEC’s oil exports have further declined in March as several countries not bound by the cartel’s late 2016 supply deal (Nigeria and Libya included) have also curbed output.

All base metal prices rallied in Wednesday LME trading. Reports abound that talks between the Indonesian government and Freeport-McMoRan Inc are close to achieving initial targets, opening the way for the Company to resume operations and exports from the world’s second-largest copper mine.

European Equities Markets

Most the major European stock markets managed modest gains in Wednesday trading. Only the IBEX 35 and FTSE MIB benchmarks went lower on the day (although their falls were only slight). Cyclicals weighed on both the latter two indexes, with Spanish and Italian banks going lower. The FTSE 100 advanced despite UK PM May finally activating Article 50 of the Lisbon Treaty, which gets the Brexit process underway. May has implored EU governments to strike a “bold and ambitious” free-trade deal, encompassing the financial industry – it is unlikely such wishes will be the immediate focus of an annoyed EU, with its President more interested in “key arrangements for an orderly withdrawal”. Remember that it took the EU more than seven years to agree on a free trade deal with Canada that encompassed the financial services industry (to some extent). The London Stock Exchange rallied after indicating that it would go ahead with a bumper dividend payment associated with its planned marriage to Deutsche Boerse, despite the latter being formally blocked by the European Commission on Wednesday. Daimler found some support, after the car maker issued a bullish guidance at its annual shareholder meeting. The Stoxx Europe 600 rose by 0.3% in Wednesday trading, powered by good gains in its Energy (+1.0%), Real Estate (+0.8%), Materials (+0.6%), Health Care (+0.6%) and Consumer Staples (+0.6%) sectors. The Telecoms (-0.2%) was a rare weak spot.

Currency Markets

The euro softened in overnight markets, on reports that key European Central Bank officials saw no mileage in sending out more hawkish policy signals over the coming few months – especially as the UK government finally initially the Brexit process. The greenback made modest gains against selected major currencies as both San Francisco Fed President Williams and Boston Fed President Rosengren hinted at the potential need for a more aggressive than currently expected tightening cycle. The countdown has started to the release of the latest US Treasury department-prepared semi-annual review on forex market practices. Due around mid-April, the latter report will include views on whether major trading partners are manipulating their currencies. As of the last report in October, no country was tarred with the manipulator brush, although China and five other economies were on a watch list. The A$/US$ rate trended higher in overnight markets. After being just above US$0.763 ahead of UK trading, the Aussie rose steadily from there to be around US$0.767 as our Thursday got underway.

Economic Releases

February Pending Home Sales. The National Association of Realtors (NAR)-compiled pending home sales index rose by a better than expected 5.5% in February, after a -2.8% decline in January. Economists were forecasting a more modest gain of around 2.5% in the latest month after a soft start to the year. Despite the solid advance seen in February, the index fell by -2.4% on a previous corresponding period basis. Some commentators argued that the good February number reflected a rush by home buyers to get into the market ahead of any further increases in fixed mortgage rates on the back of rising Treasuries yields. The NAR chief economist acknowledged the bounce in February, but at the same time noted that affordability metrics were not improving, as home prices in some US regions were still rising at least three times quicker than incomes due to limited supply. Geographically, pending home sales improved in all four broad US regions over February: Midwest +11.4%; South +4.3%; Northeast +3.4% and West (+3.1%, a slight clawback of its large -9.8% drop in January).


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