Originally published by Rivkin Securities
It was a relatively quiet night for equity markets on Monday as the Dow Jones and S&P 500 both managed to eke out a 0.2% gain. The local share market is therefore poised to open flat although the Aussie dollar has dropped to a multi month low against the US dollar, currently trading at $0.7240. The slide in the Aussie dollar comes amid fears that our economy is weakening, justifying further rate cuts while the US is already in a rate hiking cycle. The Australian Treasury yesterday release the Mid-Year Economic and Fiscal Outlook which showed higher deficits over the next few years as well as downgraded GDP growth. Despite this, Australia has retained its AAA rating for now although a downgrade is still possible. The effect of a downgrade would be a likely increase in interest rates as the cost of funding for banks would rise. This could lead to a rise in mortgage rates of between 10-15 basis points.
Bond prices halted their slide overnight with US bonds staging a small relief rally after weeks of declines. Nevertheless, the momentum is still negative with yields still hovering near a two-year high. The ten-year yield is currently 2.54%, down from a recent peak near 2.60%.
Commodity prices were flat overnight with WTI crude oil hovering around $52 per barrel. Action in the oil market has quietened down since the recent OPEC meeting. The market is waiting to see how well OPEC sticks to its promised output cuts but for now the market appears to be in somewhat of a consolidation phase. Gold prices were slightly higher overnight, managing to arrest a downtrend that has persisted since early November. Gold prices have suffered on the prospect of higher rates in the US with Fed dot plots suggesting that board members (on average) expect three rate hikes next year.
The minutes from the last RBA policy meeting will be released at 11:30am today. Although there was no change is rates at that meeting, investors will be gauging sentiment as economic data continues to provide conflicting assessments of the economy.
Data releases:
· RBA Policy Meeting Minutes, 11:30am AEDT
Japan BOJ Policy Rate Decision, tentative