8@eight: ASX set to open higher, with Myer in the spotlight

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8@eight: ASX set to open higher, with Myer in the spotlight

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By John Kicklighter
Updated

The Australian sharemarket is expected to open slightly higher after stronger oil prices boosted energy stocks and the major US stocks indicest.

The Australian share price futures index was up seven points, or 0.12 per cent, at 5,930 at around 7am AEST.

Embattled department store chain Myer will report its half-year results today, as will Agricultural chemicals supplier Nufarm.

The Australian dollar has been trading lower, under pressure from falling metals prices, amid market caution about higher US interest rates and worries about a possible trade war.

The long and short of it

1. Wall Street tumble steadies, but there's no enthusiasm: A modest rebound for US indices on Tuesday offered up a sentiment that was mirrored across most risk-sensitive assets the world over. While the session was technically a recovery, the lack of enthusiasm was difficult to miss. And why would we expect a strong rebound at this point in the week? There were no serious fundamental footholds to reach for and the risks only threaten to grow heavier heading into Wednesday's session through to the week's close.

The G20's two-day session wrapped with no meaningful reassurance that individual actions that could spawn trade wars would be avoided. Ahead, we have a Fed rate decision that is expected to end with a hike. Then through the final 48 hours EU leaders are set to meet and discuss trade – and likely possible retaliation – ahead of the planned announcement of who falls under the US steel and aluminium tariffs expected Friday.

2. Fed to hike rates, but will that lift the US dollar? There is little doubt that the Fed decision due on Wednesday in Washington will be one for the books. Yet that doesn't mean it can effectively move the dollar. The market is nearly certain (99 per cent probability according to swaps) that the central bank will hike at the meeting by 25 basis points to a range of 1.50 per cent to 1.75 per cent. This is also a 'quarterly' meeting whereby the Fed's monetary policy makers will release their forecasts from everything from growth to inflation to interest rates themselves. The market has taken up the debate on whether the Fed will hike three or four times in 2018. The members' consensus will help anchor that speculation. And, then there is the new Fed chairman Jerome Powell's first post-rate-decision press briefing, where we will see his temperament at the helm. The only problem from a trading perspective is that the greenback has floundered as rate forecasts have soared these past nine months and the threat of a clear shot from the trade war cannon at week's end is more pressing.

3. Trade wars: G20 wraps up with questionable convictions: The two-day G20 summit in Buenos Aires ended with a notable boost of ambiguity. While the carefully crafted communique did not stray too far into aggressive language, the shift towards allowances for maneuvres that are distinctly isolationist was on display. Where there was official and side-line commitment to avoid protectionism, there was a bending of linguistics to allow for moves that would nevertheless open trade wars if pursued – namely the tariffs the US plans to apply on all those who are not exempt on Friday. In a statement, US Treasury Secretary Steven Mnuchin tried to distinguish that trade actions were not protectionism, but then went on to suggest the US wasn't "afraid of trade wars". That sounds like diplomatic language preceding unfavourable actions.

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4. Kiwi rates: Spencer to deliver final statement as RBNZ Governor: The Reserve Bank of New Zealand is due to deliver its own monetary policy announcement mere hours after the much-anticipated Fed rate decision comes across the wires. No changes are expected. Indeed, traders put the probability of standstill through 2018 at nearly 70 per cent. That puts the spotlight on the accompanying policy statement, which will mark the last opportunity for Acting Governor Grant Spencer to opine from the helm before being replaced by Adrian Orr next week. If that inspires greater candour, a pickup in Kiwi Dollar volatility might be in store.

5. Australian shares fall as G20 spooks miners: The benchmark S&P/ASX 200 index ticked down 0.39 per cent on Tuesday, marking the largest decline in four days. Materials led the way downward, shedding 1.35 per cent. The sector accounts for a hefty 17.7 per cent of the overall index, of which miners are the easily the biggest subset. Selling pressure might have reflected anxiety ahead of the second day of G20 talks in Argentina, where the grouping's finance ministers and central bank governors wrestled with the threat of global trade war after the US hiked tariffs on steel and aluminium.

6. Crude oil drives commodities higher: Looking at broad commodity exchange-traded funds (ETFs), there was a modest jump on the day for natural resources as an asset class. Yet, breaking down between groups such as agricultural, metals and energy; it was clear what was the day's highlight. US-based crude oil rose more than 2 per cent on the day and easily cleared an influential technical resistance around $US62.50. While the persistent rise in US output is expected to make further headway with the American Petroleum Institute and US Department of Energy updates ahead, expectations for Crown Prince Mohammed bin Salman to pressure President Trump on the Iran deal and to broker agreement with US producers has helped to lift supply-demand speculation.

7. Aussie Dollar wobbles: The Aussie dropped against the greenback to the lowest level in three months as front-end US Treasury bonds rose and the rate hike path implied in Fed Funds futures steepened, pushing the US currency upward. The move probably reflects pre-positioning ahead of the upcoming Fed policy announcement.

8. Market Data:

SPI futures up 7 points or 0.1% to 5930 at about 7.15am AEDT

AUD down 0.5% at 76.80 US cents

On Wall St: Dow +0.5%, S&P 500 +0.2%, Nasdaq +0.3%

In New York, BHP +1% Rio +0.2%

In Europe: Stoxx 50 +0.5%, FTSE +0.3%, CAC +0.6%, DAX +0.7%

Spot gold -0.4% to $US1311.86 an ounce

Brent crude +2% to $US67.39 a barrel

US oil +2.1% to $US63.39 a barrel

Iron ore -0.8% to $US66.94 a tonne

Dalian iron ore +1.5% to 466 yuan

LME aluminium -0.6% to $US2076 a tonne

LME copper -1.4% to $US6755 a tonne

10-year bond yield: US 2.89%, Germany 0.58%, Australia 2.70%

with aap

This column was produced in commercial partnership
between Fairfax Media and IG

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