A late rally helped Wall Street close higher, on rising optimism that the US economy is gradually starting to re-open. It sets up the ASX for gains, with futures at 7.30am AEST pointing to an advance of 17 points, or 0.3 per cent at the open.
1. US stocks turn on signs of economic re-opening: After a slow start, and falls at the open, investors “bought the dip” in US stocks overnight. Somewhat true to form, what was shaping-up early on Monday for another bearish day’s trade for Wall Street reversed throughout the day, with the S&P500 closing 0.42 per cent higher overnight.
California saw its lowest daily death toll from COVID-19 in three weeks, and the state may be readying to ease some of its social distancing measures.Credit:AP
The late rally in US stocks is being attributed to news that the state of California saw its lowest daily death toll from COVID-19 in three weeks, and the state may be on the cusp of easing some of its social distancing measures.
2. Volatility eases, tech and energy outperform: Having popped back above 40 in early Wall Street trade, the VIX fell by the close of trade to end the trading lower at 36. US tech stocks underpinned stock market strength in Wall Street trade, as investors jumped back into IT stocks after their sell-off on Friday.
While the energy sector was the top performing sector, courtesy of another run higher in oil prices, which saw the price of WTI Crude rally by in excess of 7 per cent, as fears of a global oil glut diminished slightly.
3. Markets on edge on renewed US-China tensions: The rally in US equities defied concerns about a re-escalation in the US-China trade-war. Rising geopolitical tensions between the US and China is keeping traders toey, with the Trump administration maintaining its hawkish rhetoric towards China yesterday.
In a TV interview, US Secretary of State Mike Pompeo suggested the White House possesses “enormous evidence” that the COVID-10 virus originated in a Wuhan laboratory, furthering a notion put forward by US President Trump over the weekend, which the President used to give grounds for possible punitive tariffs against China.
4. FX space trade’s mixed, Euro lags the pack: Renewed geopolitical tensions, juxtaposed against a late rally in US stocks, made for a mixed day in the FX space. The US Dollar was broadly higher with the Japanese Yen. Gold was also steady at $US1700 per ounce.
But growth sensitive currencies also performed strongly, with the Australian Dollar climbing back into the 64-cent handle in US trade. The underlying factor was weakness in European currencies. The Euro was the G10’s biggest laggard on Monday, dropping by 0.75 per cent, while the GBP also fell right across the board.
5. European stocks failed to catch the upswing: The weakness in the Euro came as general market sentiment in European trade proved to fall more on the bearish side of the equation, as European traders caught up on some of the bad news after Friday’s public holiday in parts of the continent. Risk appetite was also dulled by Final Manufacturing PMI numbers overnight, which affirmed the current weakness in European business activity. The DAX tumbled 3.64 per cent and the Eurostoxx 50 fell by 3.81 per cent, paced consumer discretionary, industrials and financial sector stocks.
6. ASX200 expected to extend yesterday’s rally: Wall Street’s late rally is setting up the ASX200 for a positive start this morning. SPI Futures are pointing to a roughly 0.3 per cent jump for the index today, extending yesterday’s solid 1.41 per cent rally.
A catalyst for the ASX200’s intraday run-higher was difficult to ascertain. But it might be said to have been defensive in nature. Though a rebound in bank shares was primarily responsible for the index’s charge higher, healthcare, utilities and consumer staples were all atop the intraday market map yesterday.
7. RBA to give clues on the outlook for local economy: For local traders today, the day will be highlighted by the RBA’s monthly meeting this afternoon. Little significant change from a policy standpoint is expected from the central bank. Interest rate futures markets appear to be implying the modest chance of a partial rate-cut, but the discount priced-into overnight index swaps could well be due to another cause.
In any case, today’s RBA meeting will be about determining an update view from the central bank on the outlook for the Australian economy, ahead of the release of its comprehensive Statement on Monetary Policy this Friday.
8. Market watch:
ASX futures up 17 points or 0.3% to 5335 near 7am AEST
- AUD +0.1% to 64.24 US cents
- On Wall St: Dow +0.1% S&P 500 +0.4% Nasdaq +1.2%
- In New York: BHP +1.1% Rio -0.1% Atlassian +5.5%
- In Europe: Stoxx 50 -3.8% FTSE -0.2% CAC -4.2% DAX -3.6%
- Spot gold +0.4% to $US1706.95 an ounce at 2.54pm New York time
- Brent crude +3.1% to $US27.26 a barrel
- US oil +2.9% to $US20.35 a barrel
- Iron ore flat at $US84.04 a tonne
- LME aluminium -0.2% to $US1483 a tonne
- LME copper +0.2% to $US5120 a tonne
- 2-year yield: US 0.18% Australia 0.20%
- 5-year yield: US 0.36% Australia 0.38%
- 10-year yield: US 0.63% Australia 0.82% Germany -0.57%
- US prices as of 4.59pm New York
This column was produced in commercial partnership between The Sydney Morning Herald, The Age and IG
Information is of a general nature only.
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