ASX futures turn negative on late Wall St retreat

ASX futures turn negative on late Wall St retreat

However, markets began to shift as Powell’s news conference comments were parsed.

The policy meeting “was meant to be a non-event”, NAB’s Tapas Strickland said. “In the end it wasn’t.”

Mr Strickland said Mr Powell “turned the music up in the press conference with dovish words on inflation, stating the ‘Fed is not satisfied with inflation running below 2% and it is not a ceiling’.

“Markets interpreted that as the Fed envisaging cutting rates in the future on the inflation outlook alone instead of the flat to higher rates outlook implied at the December FOMC meeting. Markets now price 1.6 rate cuts from the Fed by the end of 2020 compared to 1.2 cuts yesterday.”

US stock indexes which initially held their gains, boosted by shares of Apple, Boeing and General Electric following their respective results were poised to end the day little changed.

The yield on the US 10-year note slid 8 basis points to 1.58% near 4.40pm New York time.

WHO puts global confirmed coronavirus cases at 6065: The World Health Organisation said it will reconvene its emergency committee on Thursday at 1.30pm Geneva time.

In his news conference, Mr Powell said there have been encouraging signs that the global economy would pick up this year – until the coronavirus struck. The preliminary US-China trade deal, the resolution of Brexit and low rates in the United States and abroad suggested that the world economy would expand more quickly. But Powell called the coronavirus a “very serious issue”, though he noted that it’s too early to tell how damaging it will be.

“It’s very uncertain about how far it will spread and what the (economic) effects will be in China, for its trading partners, and around the world, the chairman said.

At the same time, Powell suggested that “there are signs and reasons to expect” a global economic rebound.

China’s economic growth may drop to 5% or even lower due to the coronavirus outbreak, possibly pushing policymakers into introduce more stimulus measures, a government economist said in remarks published in Caijing magazine.

Copper prices earlier fell in London, taking losses over the last seven trading days to 10%.

Benchmark copper on the London Metal Exchange (LME) ended 1.1% lower at $US5642 a tonne, down from around $US6250 at the start of last week.

“It’s still too early to call the bottom,” said Capital Economics analyst Kieran Clancy.

Today’s agenda

Local: Import, export prices for the fourth quarter; NZ trade December

Overseas data: Euro zone confidence indicators January; Bank of England policy meeting and speech by Mark Carney; US fourth quarter advance GDP, Initial jobless claims January

Market highlights

ASX futures down 10 points or 0.1% to 6954 at about 8.30am AEDT

AUD -0.2% to 67.49 US centsOn Wall St: Dow flat S&P 500 -0.1% Nasdaq +0.1%In New York: BHP -0.2% Rio -0.5% Atlassian -0.1%In Europe: Stoxx 50 +0.5% FTSE flat CAC +0.5% DAX +0.2%Nikkei futures -0.3%Spot gold +0.3% to $US1572.37 /oz near 2.40pm New YorkBrent crude +0.5% to $US59.83 a barrelUS oil -0.3% to $US53.33 a barrelLME aluminium -0.9% to $US1735.50 a tonneLME copper -1.1% to $US5642 a tonne2-year yield: US 1.41% Australia 0.70%5-year yield: US 1.40% Australia 0.72%10-year yield: US 1.58% Australia 1.01% Germany -0.38%

From today’s Financial Review

Profit or ethics? Macquarie’s European dilemma: Would you flog a richly profitable financial scheme that was blessed by lawyers but deprived governments of tens of billions of dollars in tax revenues?

Billionaire developer seeks partner to finish $88 billion city: Super funds, sovereign wealth funds, pension and Asian developers are all expected to be courted as partners for billionaire developer Maha Sinnathamby.

PM demands more gas: Scott Morrison has demanded eastern states lift their moratoriums on gas development, saying the fuel was vital for the transition away from coal-fired power.

United States

Goldman Sachs sets growth targets, asks for patience: “We are planting seeds that will take time to mature and grow,” chief executive officer David Solomon said in an address to investors.

As earnings gather pace, analysts expect profit for S&P 500 companies to be flat in the fourth quarter, an improvement over a 0.6% decline estimated at the start of the season, according to Refinitiv data.

The Commerce Department said the goods trade gap, which had dropped for three straight months due to declining imports, surged 8.5% to $US68.3 billion last month.

The overall trade deficit is on track for its first annual fall since 2013, with economists saying the Trump administration’s “America First” agenda, underscored by an 18-month trade war with China, has restricted the flow of goods, particularly imports.

The sharp widening in the goods trade deficit last month suggests the expected boost to fourth-quarter gross domestic product from trade could be a bit more moderate than initially expected. Still, the overall goods trade deficit was probably smaller relative to the July-September period.

A smaller trade gap is positive for the calculation of GDP. Trade subtracted 0.14 percentage point from GDP growth in the third quarter. The Atlanta Fed lowered its fourth quarter GDP estimate to a 1.7% pace from a 1.9% rate.

JPMorgan cut its fourth-quarter GDP estimate by three-tenths of a percentage point to a 1.4% rate. The economy grew at a 2.1% annualised rate in the July-September quarter. The government will publish its snapshot of fourth-quarter GDP on Thursday.

“It looks like the contribution to fourth-quarter GDP growth coming from trade will be more modest than we had previously anticipated,” said Daniel Silver, an economist at JPMorgan in New York. “Details of the trade report related to the domestic absorption of capex point to equipment spending coming in a little weaker than we had estimated.”

Europe

Banco Santander and Safran ensured European shares ended higher.

Spain’s IBEX led regional bourses, lifted by a 4.4% rise in Santander after the lender posted a higher quarterly net profit, boosted by solid underlying performance in its main market Brazil and capital gains.

Along with a rally in Swedish banking group SEB, which topped fourth-quarter earnings, the euro zone banks index climbed 1%.

Boeing supplier Safran was also a major boost to the pan-region index after the planemaker’s shares rose despite a surprise annual loss with analysts saying much of the bad news had been priced in..

After a recovery day on Tuesday, the pan-European STOXX 600 and most major country indexes traded not more than half a per cent higher.

German shares lagged regional peers, closing up 0.2% after dipping into the red during the session. China is Germany’s most important trading partner.

Germany’s economy minister raised the economic growth outlook for the country but cut expectations for 2021.

Asia

KKR, Citi take $1b pubs float pitch to Asia: Paul Waterson is looking to float Australia’s second-largest pubs chain.

China’s economic growth may drop to 5% or even lower due to the coronavirus outbreak, possibly pushing policymakers into introduce more stimulus measures, a government economist said in remarks published on Wednesday.

The fast-spreading outbreak could cut first-quarter GDP growth by about 1 percentage point, Caijing magazine quoted Zhang Ming as saying.

“GDP growth in the first quarter of 2020 could be about 5.0%, and we cannot rule out the possibility of falling below 5.0%,” Zhang said.

Zhang, an economist at the Chinese Academy of Social Sciences – a top government think tank – said his forecast was based on the assumption that the outbreak will peak in early to mid-February and end by the end of March.

Zhang is among many government economists and, while the Academy’s views often serve as a recommendation for Chinese policymakers, his views may not fully align with those of the government, which has yet to issue any assesements

China’s growth slowed to a near 30-year low of 6% in the fourth quarter, and analysts have said they expect the epidemic to drag on the economy.

Zhang estimated its impact on China’s economy could be significantly bigger than that of Severe Acute Respiratory Syndrome (SARS), a coronavirus that originated in China and killed nearly 800 people globally in 2002 and 2003.

The world’s second-largest economy was relying more on services and consumption now than then, Zhang said, by way of explanation.

Currencies

ING sees trouble for commodity currencies from the coronavirus outbreak: “We continue to see AUD, NZD and NOK as the most exposed if market sentiment remains weak. With our commodities team seeing larger downside to metals than oil prices (where OPEC may extend cuts versus a softer floor under metal prices), AUD looks the most vulnerable among these currencies.

“Supporting this view is also the prospect of RBA easing over the next months (we expect a cut in 1Q) and the ongoing bushfire emergency which may have a sizeable impact on the Australian economy. All this underlines our preference for lower AUD/NZD in the relative value space (where we look for a decline to AUD/NZD 1.02). Among Scandies, this means lower NOK/SEK as SEK exposure to commodity prices is limited.”

Of course the RBA should cut rates: The central bank still has some way to go to bring down joblessness and rekindle inflation.

The Federal Reserve has a hefty 2020 ‘to do’ list: Jerome Powell is likely to face heavy questioning at his pending news conference about the Fed’s balance sheet.

China outbreak risks snuffing out flicker of inflation: Inflation has ticked higher on the back of the reflation trade but the growth-sapping fallout from China’s virus crisis risks dampening price pressures.

Commodities

Rio Tinto caves over reverse factoring controversy: Rio Tinto scrapped its controversial program to speed up payments to small suppliers as the storm over reverse factoring intensifies.

Prices for copper, used in power and construction, had been rising as prospects for economic growth improved, but are now nearing a 28-month low of $US5518 a tonne reached last August.

The premium of cash lead over the three-month contract on the LME fell to $US0.75 from a 5-1/2 month high of $US26.50 on Monday, suggesting that tightness in nearby supply was easing.

Benchmark LME lead finished down 3.1% at $US1832 a tonne, aluminium slipped 0.9% to $US1735.50, zinc fell 0.9% to $US2211, nickel lost 0.1% to $US12,550 and tin closed down 0.8% at $US16,200.

Australian sharemarket

Allan Gray’s stocks to watch amid bushfires, virus crisis: Allan Gray Australia’s chief investment officer Simon Mawhinney is convinced there is value to be found despite the two crises.

The S&P/ASX 200 Index firmed 37 points, or 0.5 per cent, to 7031, clawing back part of Tuesday’s 1.4 per cent loss.

The top five movers were Virgin Money UK, up 9.4 per cent; Iluka Resources, up 6.4%; with Credit Corp Group, Avita Medical and Webjet each advancing at least 4.3 per cent.

The biggest session mover was Treasury Wine, which slumped 26 per cent after warning late on Tuesday that a US business downturn had prompted a downgrade of its full-year forecasts and a softer-than-expected first-half profit.

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