Originally published by Rivkin Securities
US stocks opened higher overnight and held the gains until the early afternoon when some selling pressure stepped in. The final hour of trading saw buying resume but the final result was only a modest gain on the prior day’s close. Consumer discretionary was the strongest sector implying a bounce in retail stocks. With the Federal Reserve meeting early tomorrow morning (AEST) to decide interest rates, this will be a key event for determining the direction of equity markets going forward. The S&P/ASX 200 lost 1.2% yesterday which represented outperformance compared to the US market declines of around 2% the prior day. ASX 200 futures are flat this morning.
Oil prices plunged overnight to a new 18-month low as fears of a global economic slowdown dampen expectations for oil demand which caused the energy sector to be the worst performer for the session. The market seems unconvinced that the recent OPEC agreement to cut production by 1.2 million barrels per day will be sufficient to rebalance the market as surging production from US shale producers has counteracted the efforts by OPEC to balance supply and demand. WTI oil is currently trading at US$46.03.
US long term bond yields have fallen substantially in the last month. In November, the 10-year yield was above 3.0% but is currently just 2.82%. This has come with a flattening of the yield curve such that the difference between the 2-year and 10-year yields is now just 0.18%. A flat or inverted yield curve can indicate that the market expects a recession in the short to medium term.
Data Releases:
- FOMC Meeting 5:00am AEST