Originally published by Rivkin Securities
The Australian dollar gave back initial gains on Tuesday to finish -0.35% lower against the greenback. The currency initially strengthened following the Reserve Bank of Australia’s decision to leave interest rates unchanged at the record low 1.5% before being weighed on by a stronger US dollar after the US trade deficit narrowed more than anticipated. The statement accompanying the decision by Governor Philip Lowe highlighted a fairly mixed outlook, noting that while GDP was weaker during the September quarter this weakness was driven by temporary factors with expectations for annual growth around 3% in the coming years.
Headline inflation is expected to pick up throughout 2017, in line with the trend globally thanks to higher commodity prices, although the rise in core inflation is expected to be more gradual. A key topic, the housing market, is varied around the countries with some areas risking briskly while other markets are seeing declining prices. The current data suggests there is no urgency for the RBA to take action and therefore likely to keep policy unchanged in the coming months.
If the RBA were to act on monetary policy the probability is that they would ease rather than hike given the underlying weakness in the labour market which in turn flows into low wage growth and therefore keeping inflation subdued. Looking ahead for 2017 for potential dates the RBA could act just prior to the release of its quarterly statement on monetary policy. This provides the central bank the ability to provide more information round their reasoning and guidance for the outlook. In 2017 this would be either May 2nd, August 4th or November 10th.
Locally the S&P/ASX 200 outperformed Asian counterparts, reversing initial declines to finish +0.11% higher while the Nikkei 225 finished -0.35% lower, as did the KOSPI (-0.12%), Hang Seng (-0.07%0 and CSI 300 (-0.22%). European equities were mixed, with DAX and Euro Stoxx 600 both gaining +0.34% & +0.32% respectively while the CAC40 was -0.49% lower as the presidential race kicks into gear. In the US the Dow Jones pushed to a new intraday all-time high, up +0.19% at 20,090.29, the Nasdaq 100 closed +0.35% higher and the S&P500 swung between gains and losses before managing to finish +0.02% higher.
US earnings season remains in full swing, with 60% of S&P500 companies now having reported Q4 earnings. Of those 67% have topped earnings estimates while 48% have beaten revenue forecasts. Overall earnings are expected to rise +8.2% year-on-year although the number of companies beating earnings & revenue for the quarter are slightly below the average for the past four quarters.
This morning we can expect a fairly flat start to trading with ASX SPI200 futures up +3 points in overnight trading.
Data releases:
· Bank of Japan Summary of Opinions (Jan 31st meeting) 10:50am AEDT
· Japan Current Account (Yen MoM Dec) 10:50am AEDT
· U.S. Crude Oil Inventories (Feb 3rd) 2:30am AEDT