ASX poised to open higher

Production of coking or metallurgical coal, which is a key steel-making ingredient, rose to about 1.6 million tonnes in the December quarter from 788,000 tonnes a year earlier. The figure was substantially higher than a Citi estimate of 804,000 tonnes.

Today’s Agenda

Local data: Housing finance November

Overseas data: US total net TIC flows November, Housing starts December, Building permits December, Philadelphia Fed index January

Market Highlights

SPI futures up 9 points or 0.2% to 5790 at about 8.15am AEDT

AUD -0.4% to 71.72 US cents

On Wall St: Dow +0.6% S&P 500 +0.2% Nasdaq +0.2%

In New York, BHP -0.4% Rio +0.2% Atlassian -1.1%

In Europe: Stoxx 50 +0.3% FTSE -0.5% CAC +0.5% DAX +0.4%

Spot gold +0.4% to $US1294.07 an ounce at 12.50pm New York time

Brent crude flat at $US60.65 a barrel

US oil -0.7% to $US51.77 a barrel

Iron ore +0.7% to $US74.31 a tonne

Dalian iron ore -0.1% to 512 yuan

LME aluminium +0.7% to $US1859 a tonne

LME copper +0.8% to $US5970 a tonne

2-year yield: US 2.54% Australia 1.81%

5-year yield: US 2.54% Australia 1.94%

10-year yield: US 2.72% Australia 2.27% Germany 0.22%

US-Australia 10-year yield gap as of 8.17am AEDT: 45 basis points

From Today’s Financial Review

Britain’s choice: delay or crash out: The betting markets are pricing in a delay to Brexit, and currency traders seem to be following suit. But it’s far from a given; and without that delay, it’s hard to see how Britain avoids a no-deal Brexit.

FIRB gets tougher on Chinese companies: Australia’s foreign investment regulator no longer believes private companies in China are free of Communist control, a move which has ensured all mainland takeovers are now subject to enhanced screening.

Aitken’s high conviction fund loses 23.8pc: The high-conviction strategy managed by Charlie Aitken suffered a 23.8 per cent loss last year, but the fund manager believes he could yet be right.

United States

Wall Street’s major indexes hit one-month highs on Wednesday as strong earnings from Bank of America and Goldman.

Volatility-sensitive buyers are back: Volatility-linked strategies are adding $US1 billion to stocks each day, according to two JPMorgan quantitative analysts.

The two banks’ results drove a 2.2 per cent gain in the S&P 500 financial index, which was by far the biggest advancer among the S&P’s major sectors. The S&P banking subsector climbed 2.7 per cent.

Bank of America bolstered by loan growth

Goldman’s revenue beats estimates

A strong start to the US earnings season, along with trade optimism and hopes of a slower pace in the Federal Reserve’s interest-rate hikes, have helped S&P 500 recoup some of its losses from a recent rout. The index is now 10.7 per cent away from its September 20 record close after having fallen as much as 19.8 per cent below that level.

With Wednesday’s gains, the S&P 500 came within striking distance of its 50-day moving average, a key indicator of short-term trends, for the first time since December 4. The Nasdaq crossed its 50-day moving average on Tuesday for the first time since December 3.

BlackRock’s quarter hit by market turmoil

Oxford Economics’ take on the shutdown: “Now in its fourth week, the government shutdown represents a triple threat to US economy: the direct loss of output from government workers and affiliated parties; increasing system inefficiencies and reduced aid to low-income families; and a blindfold on private-sector and Fed policymakers at a time when economy appears to be slowing.

“We estimate the drag on real GDP is roughly $US700 million or 0.05% per week of government shutdown. As such, if the government stays closed through end of January the hit to first quarter growth would be 0.2ppt pushing our GDP tracker to 1.9% (annualised). If the shutdown lasts through Q1, the drag would cumulate to 0.6ppt, bringing our GDP tracker to 1.5%. However, the longer the shutdown lasts, the larger the multiplier could be via disruption to essential services like food stamps and increased private sector uncertainty.

“It will probably take months, not weeks, for the data calendar to return to normal when the shutdown ends. Some data that will be released, notably, the January employment data will be distorted by the shutdown. Assuming the President signs legislation guaranteeing backpay for workers, the payroll effect could be minimal, but the unemployment rate could rise 0.2ppt, to above 4%.”


The Euro Stoxx finished the session up 0.5 per cent, with most indexes on the continent in the black while London’s FTSE lagged, down 0.5 per cent, as a firming pound weighed on multinational exporters which make the lion’s share of their earnings in foreign currencies.

The FTSE 250, a benchmark for domestically exposed UK firms, rose 0.3 per cent with homebuilders and local retailers making big gains.

Euro zone banks shares were the biggest boost to European indexes, rising 2.4 per cent to their highest in over a month as investors bet that a disruptive no-deal Brexit was less likely after the parliamentary vote.

The rally in Italian banks, led by Unicredit up over 10 per cent, helped Milan’s FTSE MIB outperform peers with a 1.6 per cent rise.

Some analysts cautioned however that the new found optimism might be short-lived.

“Unfortunately, everything remains possible: new elections, an extension of the deadline for Article 50, or even a second referendum,” said Stefan Kreuzkamp, chief investment officer at DWS.

In Germany, Deutsche Bank shares spiked higher in afternoon trading after a Bloomberg report said regulators would prefer the German lender to merge with a European rival rather than local competitor Commerzbank. Shares in Deutsche Bank, which hit their lowest level on record last month, were up 8.4 per cent while Commerzbank share also rallied 7.4 per cent.


China’s central bank injected a record $US83 billion into the country’s financial system on Wednesday, seeking to avoid a cash crunch that would put further pressure on the weakening economy.

China’s policymakers are pledging to step up stimulus measures this year and do more to protect jobs as economic growth cools to 28-year lows.

But a raft of measures last year from big rail projects to tax cuts seem to have had little impact so far, with recent data suggesting activity is cooling more quickly than expected.

“The news is clear – the economy needs help,” said Trinh Nguyen, senior economist for emerging Asia at Natixis in Hong Kong.

In a rare encouraging sign, home prices remained buoyant in December, suggesting that at least some of Beijing’s efforts at support are beginning to have an effect. Construction also appears to be slowly picking up as regulators fast-track approvals of more infrastructure projects.

But analysts agree steps so far will take some time to percolate through the broader economy, with most not expecting activity to convincingly bottom out until summer.

On Monday, China is expected to report the economy grew 6.6 per cent in 2018, cooling from 6.9 per cent the previous year and the slowest rate of expansion the country has seen in 28 years.

The pace is expected to slow further to around 6.2 per cent this year. Some analysts’ in-house models suggesting activity is already much weaker than official data suggests.

Hong Kong shares rose on Wednesday, helped by hopes that a shift to more stimulating policy could boost China’s economy, but investors remained cautious amid uncertainty over Brexit, trade and slowing global growth. At the close of trade, the Hang Seng index was up 0.3 per cent at 26,902.10 points. The Hang Seng China Enterprises index rose 0.5 per cent to 10,555.52.

China’s main Shanghai Composite index ended flat at 2570.42 points, while the blue-chip CSI300 index inched up just 0.02 per cent.

Around the region, MSCI’s Asia ex-Japan stock index was firmer by 0.2 per cent, while Japan’s Nikkei index closed down 0.6 per cent.


SocGen on the $A: “The Australian dollar was dragged lower as US/Australian yield differentials widened in the former’s favour last year. The turn in US yields has helped AUD/USD base and a stronger CNY has helped sentiment too, along with hopes of a trade deal between the US and China. Jason and Wei still think the yuan will be weaker by year’s end but only by 4%. As with the euro, the AUD (and for that matter, CAD) can only manage a limited recovery without home-grown rate and yield support, but as what US data we’re getting confirms the economy’s slowing, we should see both make some headway.”

Capital Economics on the outlook for the British pound: “We think that the favourable response of sterling to Tuesday’s resounding defeat in Parliament for Prime Minister May’s Brexit deal is a sign of things to come.

“To re-cap, the 230 vote defeat prompted the UK’s currency to rally to its highest level in two months against the dollar. Expectations that the Bank of England will tighten monetary policy over the next year also increased, with the implied-probability that its policy rate will be above 0.75% in twelve months’ time climbing to its highest level since mid-November. This pushed the 10-year Gilt yield up to a one-month high.


Marex Spectron on the outlook for thermal coal: “Short-term supply conditions are bullish. Supply is tighter across both the Atlantic and Pacific basins. This will support both API2 and NWC prices. The net re-stocking trend in the EU has persisted which should absorb additional supply from the market. However, we see an increase in inventory across several key coal consuming countries which is a price negative development.

“Our assessment of demand remains bullish. We picked up a marginally higher fossil fuel utilization which would imply higher coal consumption in the short-term. Chinese coal demand has strengthened further which should support prices. While we picked up improvements in demand from other North Asian countries (Japan-S.Korea-Taiwan), overall demand remains below average.

:Overall macroeconomic conditions are bullish. Marginal improvements in lending and manufacturing conditions in key coal consuming nations should support short-medium term demand. Weakness in the dollar continues to be picked up by our models and is likely to go on to support coal prices.”

Nickel touched a 10-week high on Wednesday as falling stockpiles and a tightening of time spreads suggested an undersupplied market.

Benchmark nickel on the London Metal Exchange (LME) closed down 0.4 per cent at $US11,630 a tonne after reaching $US11,770, its highest level since November 8.

The stainless steel ingredient is up around 10 per cent from a 15-month low on January 2. It has been caught up in a broader slide in industrial metals because of fears that China’s economic growth is slowing.

The European Union will limit imports of steel into the bloc until July 2021 to counter concerns of EU producers that European markets could be flooded by steel products that are no longer being imported into the US.

The European Commission said on Wednesday that EU member countries had backed its plan to impose “safeguards” and that definitive measures would enter force early in February. The bloc had already imposed safeguards on a provisional basis on imports of 23 steel product types in July, with an expiry date of February 4.

Australian Sharemarket

The S&P/ASX 200 Index rose 20.6 points, or 0.4 per cent, to 5835.2, while the broader All Ordinaries advanced 21.9 points, or 0.4 per cent, to 5893.7.

The major banks led the market gains on Wednesday with some modest advances. Westpac shares rose 0.9 per cent to $26.00, ANZ climbed 0.8 per cent to $25.75 and NAB lifted 0.3 per cent to $24.80. Commonwealth Bank shares closed lower, down 0.1 per cent to $72.55.

The banks led a broadly positive financial sector with Macquarie shares climbing 0.9 per cent to $116.00. QBE Insurance advanced 1.8 per cent to $10.84, Suncorp climbed 2.2 per cent to $12.55 and Insurance Australia Group closed 1 per cent higher at $7.18.

Street Talk

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with Reuters, Bloomberg, AAP

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