Australian shares are poised to edge higher at the open, as European and US equities were bolstered by positive local manufacturing data. The RBA’s latest policy statement is set to be released at 2.30pm AEDT.
ASX futures were up 5 points or 0.1% to 6864 near 4.45am AEDT. The currency was little changed. The RBA is expected to hold the cash rate steady, though point to downside economic risks.
Shares were higher across Europe and on Wall Street. The Euro zone manufacturing PMI edged higher last month, albeit still in contraction territory. The US PMI manufacturing data pointed to an unexpected expansion to start the year.
While the data revived investor sentiment, economists said the reprieve could prove temporary depending on how the coronavirus outbreak impacts global growth.
China’s iron ore and steel futures fell by their daily limits on Monday, which is 8%, with the key steelmaking raw material plunging the most in almost 15 months as markets reopened after an extended Lunar New Year break.
The spot price of iron ore, as reported by Fastmarkets MB, fell to $US80.38 a tonne.
In London, copper fell 0.8%, taking its loss since January 23 to 7.8%.
“Clearly there are massive downside risks (for prices),” said Capital Economics analyst Kieran Clancy.
A significant hit to demand was now priced in, he said, and if the virus is brought under control, demand will likely bounce back later in the year, lifting prices.
“But there’s every chance that we see a hit that isn’t reversed,” he added.
Also in London, benchmark aluminium finished down 2.1% to $US1686.50 a tonne after hitting its lowest since January 2017.
Zinc fell 2.5% to $US2146, nickel slipped 1% to $US12,725, lead tumbled 2.9% to $US1825 and tin closed 0.9% lower at $US16,205.
Local: RBA board meeting, decision at 2.30pm AEDT; NZ building permits December
Overseas data: Euro zone PPI December; US factory orders December, Durable goods orders December
ASX futures up 5 points or 0.1% to 6864 near 4.45am AEDT
- AUD -0.1% to 66.86 US cents
- On Wall St near 12.45pm: Dow +0.6% S&P 500 +0.8% Nasdaq +1.3%
- In New York: BHP -0.7% Rio -0.5% Atlassian -0.2% Telsa +13.4%
- In Europe: Stoxx 50 +0.6% FTSE +0.6% CAC +0.5% DAX +0.5%
- Nikkei 225 futures flat Hang Seng futures +0.3%
- Spot gold -0.8% to $US1576.87 /oz at 12.36pm New York
- Brent crude -3.1% to $US54.88 a barrel
- US oil -2.2% to $US50.41 a barrel
- Iron ore -5.4% to $US80.38 a tonne
- Dalian iron ore -8% to 606.5 yuan
- LME aluminium -2.1% to $US1686.50 a tonne
- LME copper -0.8% to $US5523 a tonne
- 2-year yield: US 1.35% Australia 0.62%
- 5-year yield: US 1.35% Australia 0.62%
- 10-year yield: US 1.53% Australia 0.92% Germany -0.44%
- 10-year US/Australia yield gap: 61 basis points
From today’s Financial Review
Low interest rates open generational divide: poll: Mortgage holders are in no hurry to see rates rise while retirees say they are being forced to take more risks with their money in order to get by.
China sell-off reflects growth fears: China’s stocks and currency have become collateral damage as investors cut and run amid concerns about the growth fallout from the coronavirus.
What we learnt from the Hayne inquiry: The country’s four big banks remain in the doghouse, as Australia’s corporate leaders debate the good, the bad and the ugly of the Hayne commission.
Inside CBA’s post-Hayne strategy: A year after the Hayne royal commission, CEO Matt Comyn is no longer making routine apologies to customers for the actions of his staff. That’s a sign of real progress.
US economy poised to lose $15b as Chinese visitors plunge: Travel restrictions intended to contain the coronavirus could cost the US economy more than $15 billion, and it would take four years to recover.
US stocks climbed on Monday as gains in Amazon and Nike as well as a surprise rebound in US factory activity helped markets attempt a recovery from steep weekly losses due to concerns about the coronavirus epidemic.
ISM data showed the manufacturing sector expanded in January after five straight months of contraction, indicating that a prolonged slump in business investment has probably bottomed out.
“Sure we’ve been held back on worries about coronavirus, but this morning it’s been a story of data showing US economy is really strong,” said John Brady, managing director at R.J. O’Brien & Associates in Chicago.
Google-parent Alphabet gained 2.7% ahead of its quarterly results, which will wrap up earnings for the so-called FAANG group of stocks.
Shares of Nike rose 4.6% after JP Morgan added the footwear maker to its focus list and provided the biggest boost to the Dow Industrials.
Tesla jumped more than 13% as Japan’s Panasonic posted its first ever quarterly profit in its US battery business with the electric-car maker. Tesla’s market cap has topped $US130 billion. It’s stock has leapt more than 75% so far this year.
Wedbush on Tesla: “While Tesla shares remain on a historic rally post earnings, the bull party will likely continue in the near-term as the aggressive trajectory of Giga 3 production and demand out of Shanghai look very strong out of the gates with the potential to see 150k units/demand out of the region over the next year in our opinion.”
Exxon Mobil dropped 2.4% after Goldman Sachs downgraded the oil major’s shares to “sell”.
Boris vows Britain will become free trade ‘Superman’: British PM Johnson sheds his populist disguise, slating countries that use tariffs “like cudgels”.
A multi-billion euro merger and encouraging manufacturing data helped European shares close higher on Monday after their worst week in six months.
In London, after Britain officially exited the European Union on Friday, Prime Minister Boris Johnson set out tough terms for Brexit talks, rekindling fears Britain would reach the end of an 11-month transition period without agreeing a trade deal.
Internationally focused companies on London’s blue-chip index benefited as the hard Brexit talk pummelled the pound. The FTSE 100 ended 0.6% higher.
The pan-European STOXX 600 index built on its gains to close up 0.3% with shares of French payments services provider Ingenico Group topping the index.
Ingenico surged 17.2% after peer Worldline agreed to buy the company for €7.8 billion. Shares of smaller rival Nexi also rallied amid talk of more sector consolidation, taking the tech sector up 1.6%, the most among European sub-sectors.
European travel and leisure stocks ended up 0.3% as budget airline Ryanair led gains after it swung to a profit in the third quarter.
Further boosting sentiment, a survey showed euro zone factory activity contracted again in January but did so at its shallowest rate since mid-2019, suggesting the worst may be over for the bloc’s battered manufacturing industry.
Japanese shares closed lower on Monday, tracking a sharp sell-off in Chinese equities, on rising worries over the economic impact from the coronavirus outbreak in China.
The Nikkei index ended 1.01% lower at 22,971.94, with consumer discretionary and information technology sectors leading declines.
“It is difficult to judge by only one day of trading, but sentiment will weaken if Chinese shares continue to fall, which is bad for Japanese stocks,” said Shusuke Yamada, head of FX and Japan equity strategy at Merrill Lynch Japan Securities in Tokyo.
“It’s uncertain how this will affect earnings-per-share ratios for Japanese stocks. So it is difficult to say where the Nikkei will find support.”
Meanwhile, Japan’s manufacturing activity shrank for a ninth month in January as output and new orders contracted again, pointing to further strains on the economy, a business survey showed.
Chinese markets, which were closed since the end of trade on January 23 for Lunar New Year holidays, reopened on Monday with a steep fall of more than 9%.
Virus threatens financial stability across south-east Asia: Thailand and Singapore are expected to be the worst hit, followed by Malaysia and Vietnam and then Indonesia and the Philippines.
Oxford Economics cuts China growth forecast: “As the Wuhan nCoV coronavirus outbreak and responses by governments and firms intensify globally, we have revised down our GDP growth forecast for China. We now project China’s growth in Q1 will be cut by more than 2 percentage points. Even with a rebound in Q2, we now expect 5.4% growth for China in 2020, compared with our previous 6% forecast for this year.”
RBA to cut, say ING, Morgans and Deutsche: A small group of contrarian economists is expecting the Reserve Bank of Australia to surprise financial markets by cutting the official interest rate Tuesday.
How the J Curve saved an RBA rate cut: Economists wrongfooted on their February interest rate cut calls may have missed just how worthwhile the Reserve Bank of Australia’s efforts on exchange rate management have been.
Yield-curve inversion is sending a message: Ritholtz: For now it begs the question: what might trigger the next recession and what might it look like?
The Dalian Commodity Exchange’s most-traded iron ore contract closed down 8% – the maximum amount by which the price is allowed to drop for the day – at 606.5 yuan ($US87.85) a tonne, the lowest since Decemberf 2 last year.
That was the contract’s biggest one-day fall since November 26, 2018. Volumes, however, were thin as many market participants remained absent.
On the Shanghai Futures Exchange, the most-active construction steel rebar contract shed 8% to a near three-month trough of 3233 yuan a tonne, marking its biggest one-day drop since April 7, 2017.
Rohan Kendall, head of iron ore and steel at Wood Mackenzie, said the consultancy does not see any immediate need to revise its 2020 price forecast of $US80 a tonne due to iron ore’s vulnerability to supply side risks and potential for financial stimulus from Beijing.
CBA on the outlook for iron ore prices: “Iron ore prices fell, alongside most other commodities, on demand fears linked to rapid spread of the coronavirus. A number of provinces in China have already announced that they have extended the Lunar New Year holiday period to February 8 or February 9 to contain the spread of the virus. Originally the holiday period was meant to end on January 30, but was officially extended nationwide to February 2.
“For markets like iron ore, which are driven by physical trade, the delay to industrial activity is keeping buyers away from the spot market and weighing on prices.”
Shanghai copper prices fell to a three-year low on Monday. The most traded copper contract on the Shanghai Futures Exchange (ShFE) fell by its daily limit of 7% to 44,780 yuan a tonne, the lowest since November 2016, before ending down 6.5% at 45,040 a tonne.
Benchmark LME copper ended 0.8% lower at $US5523 a tonne — down around 7.5% from its close on January 23, 13% from a high in mid-January and near a two-year low of $US5518 reached last September.
Analysts at Citi said they expected prices to fall to $US5300 over the next three months but recover to around $US6300 in the third quarter as China pumps money into its economy.
The Australian sharemarket on Monday suffered its second worst session so far this year, as concerns about the economic impact of the coronavirus rippled through global markets.
The S&P/ASX 200 Index dropped 93.9 points, or 1.3 per cent, to 6923.3, falling to its lowest level in three weeks.
Coles, Woolies and CSL best bets on ASX: Argo: Offshore investors may cut exposure to Australian in coronavirus economic fallout, and the big banks are still a few months from hitting rock bottom.
Tech stocks to watch when half-yearly results drop: Analysts have sounded off on some of the big issues facing notable tech stocks they will be keeping an eye on during reporting season.