A deep winter freeze in the US South that shut wells and oil refineries in Texas bolstered US oil prices.
Bitcoin briefly topped $US50,000; it was trading at about $US48,500 near 8.45am AEDT on bitstamp.net. MicroStrategy said it would borrow more money to buy more of the cryptocurrency.
“Reflationary assets continued their upside momentum,” Axi’s Stephen Innes said in a note. “Democrats will increase their focus on the stimulus bill with the impeachment trial for Trump now in the rear window.”
“In what seems like the simplest argument to buy stocks, a sooner return to post-COVID world, the reflation trade has been running wild,” Oanda’s Edward Moya said. “After making fresh record highs, the S&P 500 index pared gains but have stabilised after Fed’s Esther George noted the rise in yields is not concerning but that they will keep watching.”
Morgan Stanley has lifted its forecast for US economic growth for 2021 to 6.5 per cent, reflecting pandemic relief money that most consumers have been saving because of lockdowns. It’s also wary of a potential acceleration in inflation.
“The speed and strength of the demand recovery will put a strain on the supply side, which has limited time to respond, and accelerated labour market restructuring will likely push the natural rate of unemployment higher in the near term,” Morgan Stanley said. “Against this backdrop, inflationary pressures will build up very quickly” in line with the Fed’s stated policy goals.
In a note TD Securities said it is looking for the yield on the US 10-year to rise toward 1.45pc later this year; though it’s taking “profits on the shorts as the risk-reward is not as compelling. We think that [Fed chairman Jerome] Powell will reiterate next week that the Fed is in no rush to exit”.
TD also said it thinks there are three potential circuit breakers on US yields: real rates have started moving higher; primary mortgage rates have starting rising; and, global rates are staying low, reflecting ongoing COVID related challenges.
NAB’s Rodrigo Catril said “The reflation trade appears to be stepping into (another) high gear”. “The move up yields is probably making investors nervous about the 30-year Bund and 15-year Gilt sales due to take place tonight while in the US the recent rise in rates might have been exacerbated recently by mortgage-related ‘convexity’ hedging – the higher rates go, the more hedging that needs to be done, which puts further upward pressure on rates.”
Local: Westpac leading index January
Overseas data: Japan machinery orders December; UK January CPI; US January retail sales and industrial production, February NAHB housing market index, December business inventories
ASX futures down 20 points or 0.3% to 6838 near 8am AEDT
- AUD -0.4% to 77.54 US cents
- On Wall St: Dow +0.2% S&P 500 -01% Nasdaq -0.3%
- In New York: BHP +7.3% Rio +4.8% Atlassian -1.6%
- In Europe: Stoxx 50 -0.2% FTSE -0.1% CAC flat DAX -0.3%
- Spot gold -1.1% to $US1799.72/oz at 1.10pm New York time
- Brent crude -0.2% to $US63.17 a barrel
- US oil +0.7% to $US59.87 a barrel
- Iron ore flat at $US166.88 a tonne
- 2-year yield: US 0.12% Australia 0.10%
- 5-year yield: US 0.57% Australia 0.58%
- 10-year yield: US 1.31% Australia 1.32% Germany -0.35%
- US prices near 4.42pm New York time
From today’s Financial Review
Disclosure laws eased for good: The federal government is extending its push to make it harder for disgruntled shareholders and class action lawyers to sue businesses.
Bullish BHP’s $US5b bonanza on recovery signs: BHP believes the world economy is through the worst of the coronavirus pandemic, emboldening the miner to pay a bigger than expected, record interim dividend worth $US5.1 billion ($6.55 billion).
The cyclical trade is off to the races, which is a sign of a brand new business cycle, a brand new recovery and of faster growth to come,” said Thomas Hayes, chairman of hedge fund Great Hill Capital in New York.
“Even if the market was going sideways or only modestly higher, we could see material rallies under the surface in those laggard groups from last year and that’s going to be a huge play this year.”
The S&P value index, which includes bank, energy and industrial sectors, has risen more than 6pc in the past two weeks, slightly outperforming the growth index, which is skewed more toward technology.
Shares of cryptocurrency and blockchain-related firms including Silvergate Capital Corp, Riot Blockchain and Marathon Patent Group jumped after bitcoin surged past $US50,000.
The pan-European STOXX 600 ended largely unchanged after jumping 1.3pc in the previous session to its highest level since February 2020.
A 2pc rise in shares of Glencore helped the European mining index climb to a near 10-year high, while higher iron ore and base metal prices supported the sector.
BHP Group, the world’s largest miner by market capitalisation, rose 1.5pc after posting its best first-half profit in seven years and declaring a record interim dividend.
Commodity prices have benefited recently from expectations that increased stimulus measures and steady vaccinations will stoke global demand.
Energy stocks rose 0.5pc on stronger oil prices.
Bank stocks rose to a more-than 11-month high as investors bought into some sectors that have been severely hit by the pandemic.
Analysts lifted their first-quarter profit growth forecast for European listed companies to 42.7pc from the 41pc that was expected last week, according to Refinitiv data, on growing expectations of an economic recovery this year.
But fourth-quarter earnings are now expected to have fallen 19.9pc versus the 18.2pc drop seen last week.
Hong Kong stocks closed higher on Tuesday, marking a bull run on the first day of trading after the Lunar New Year holidays with investors tracking strength in overseas market on optimism over global economic recovery.
Expectation that COVID-19 would gradually come under control and anticipation of strong buying interest from mainland investors as China markets reopen on Thursday aided demand for laggards such as property and old economy stocks, brokers said.
The Hang Seng index surged 1.9pc to end at 30,746.66, the highest close since June 2018, while the China Enterprises Index rose 1.3pc to 12,036.15 points.
China’s mainland markets will remain closed for the Lunar New Year celebrations and are scheduled to reopen on February 18.
MSCI’s broadest index of Asia-Pacific shares outside Japan edged up 0.6pc while Japan’s Nikkei rose 1.3pc.
Prospects of reflation – a boost in inflation from extraordinary fiscal stimulus – pushed US Treasury yields above 1.25pc for the first time in 11 months. This had a corresponding effect on euro zone bond yields.
RBA board discussed debt risks but cheap money won: The meeting considered higher leverage risks, particularly in housing, but concluded these were outweighed by the benefits of a record low cash rate.
Italy sold debt at near record-low interest rates on Tuesday, riding investor enthusiasm at the appointment of former European Central Bank chief Mario Draghi as prime minister.
Rome is set to raise a total of €14 billion from the sale of a 10-year nominal bond and a 30-year inflation-linked note, one of the banks managing the issue said, adding demand had totalled more than €82 billion.
The Treasury has set the yield on the new 10-year BTP bond at 4 basis points above the rate of an existing April 2031 BTP note, halving the initial indication of an 8 basis point spread.
With the April 2031 BTP bond yielding 0.568pc on the market, Italy looked set to pay the cheapest 10-year yield on record for a syndicated issue – not far from Rome’s lowest-ever 10-year yield paid at auction last November.
ANZ sees headwinds for iron ore: “The wave of euphoria that lifted iron ore prices to record highs has ebbed. Focus is now on the downside risks, which should be enough to drag prices down in the short term. Nevertheless, fundamentals are broadly positive, so we don’t expect this to develop into a sharp sell-off.”
ANZ reiterated its 12-month price target of $US100 a tonne for the steel making material.
“Rising costs and falling steel prices are hitting China’s steel mills,” ANZ also said. “High iron ore and coking coal prices have sent steel margins for China’s blast furnaces plummeting. After hitting a two-year high of $US800 a tonne in late 2020, margins turned negative.
“The last time steel margins fell below zero for as significant time was in 2015, when a glut of steel pushed Chinese steel prices to record lows. It’s not surprising that steel production fell that year by 2.8pc to 794mt.
ANZ said: “There is a close correlation between steel mill margins and growth in steel production. If steel prices keep falling while materials prices are high, we could see Chinese steel mills close some operations. At the very least, the correlation with steel margins suggests growth in steel output could fall to low single digit levels.”
BHP spruiks low cost path to iron ore export boost: BHP said iron ore prices should remain strong and it would raise exports if markets were accommodating.
Glasenberg tips more China pressure on Australian coal, iron ore: The Glencore boss says China is certain to develop a new iron ore province in Africa and won’t be bothered by the high cost of its protectionist coal policies
ASX firms 0.7pc, buoyed by BHP profit: The ASX has inched closer to its pre-pandemic record amid sustained momentum for global equities and more positive earnings updates.
‘Room for improvement’ at Transurban, AGL and Telstra: Analysts expect boosted toll road traffic (barring further lockdowns) and more soft earnings at the energy provider, but say the telco has turned a corner.
Dave Sharma on opposite side of Tim Murray’s shorts: Tim Murray, who never really had a shot of beating Dave Sharma for the seat of Wentworth, appears to have since moved the battle to more comfortable terrain.