Originally published by Rivkin Securities
US stock markets had a strong session overnight with the Dow Jones Industrial Average rising 0.68% and reaching a new all-time high. The Nasdaq 100 staged a strong rebound, climbing 1.6%, after a couple of weeks of declines. The strong market gains occurred despite comments from NY Federal Reserve Bank president William Dudley that further rate hikes and quantitative tightening will be proceeding as expected. Conventional wisdom would suggest that increased interest rates and the withdrawal of money from the economy would be negative for stocks but the market is shrugging this off for now.
Brexit negotiations have now officially begun. The early phase of the talk will be primarily about building trust with no substantive decisions expected to be made. The expected outcomes range from a ‘hard’ Brexit, where the UK would leave the single market and all other forms of trade agreement, to a ‘soft’ Brexit where the UK would leave the single market but possibly stay in the Customs Union and maintain a privileged position regarding trade with the EU. As the talks progress, more information on the direction of the talks will emerge and markets will have a better idea which outcome is more likely.
WTI oil fell back below $45 per barrel overnight as concerns of a supply glut persist. Shale output in the US is at a one year high and climbing as the number of drilling rigs also continues to increase. Costs per well have been reduced significantly and extraction efficiency has increased, thus bringing the breakeven cost down substantially from levels just one to two years ago. Although oil inventories have been reducing over the past few weeks, they are still high by historical standards and typically reduce at this time of year as North America enters the summer driving season.
The ASX should follow the US markets higher today with futures suggesting an eight point increase in the S&P/ASX 200.
Data releases:
- RBA Monetary Policy Meeting Minutes 11:30am AEST- US Current Account 10:30pm AEST