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Category: Stockmarket / Currency / Futures / Markets

Dow Jones index nears 20,000-point milestone as Trump-Santa rally continues

Wednesday, 14 Dec 2016 05:53:21 | Sue Lannin

The Dow Jones Industrial Average reached an intraday high of 19,953.75 during the session. (Reuters: Chip East)

US stocks have reached fresh record highs, with the Dow Jones Industrial Average closing in on 20,000-points.

Markets at 8:20am (AEDT):

  • ASX SPI 200 futures +0.4pc 5,574
  • AUD: 74.99 US cents, 59.21 British pence, 86.29 Japanese yen, 70.59 euro cents, $NZ1.0401
  • US: S&P 500 +0.65pc to 2,272, Dow Jones +0.58pc to 19,911, Nasdaq 0.95pc to 5,464
  • Europe: Euro Stoxx +1.04pc to 345, FTSE +1.13pc to 6,969, DAX +0.84pc to 11,285
  • Commodities: Gold -0.29pc to $US1,158.80/ounce, Brent crude oil -0.2pc to $US55.58/barrel, iron ore -$US0.16 to $US83.42/tonne

The rally has been driven by hopes about the stimulatory impact US President-elect Donald Trump's policies will have, and is now also combining with the so-called Santa rally that markets typically enjoy in the run up to the festive season.

The rally also comes ahead of the latest decision on interest rates by the US Federal Reserve.

The Fed is expected to increase official rates in a sign of the improving US economy when it announces its decision on Wednesday (early Thursday morning in Australia).

Markets have priced in a nearly 100 per cent chance of the second US rate rise in a decade with an increase of a quarter of a percentage point expected to a new target range of 0.50-0.75 per cent.

The benchmark Federal Funds Rate is currently at 0.25 to 0.50 per cent.

Investors will also be watching the Fed's statement for clues about possible interest rate rises next year with the expectation that Mr Trump's expansionary policies will fuel inflation.

In a note, ANZ economists wrote that they expected the Federal Open Market Committee (FOMC) to remain cautious because of uncertainty about the policies of the new Trump administration.

"The consensus expectation remains that the FOMC won't move its economic forecasts or interest rate projections meaningfully at tomorrow's announcement or at least until it becomes clear what Donald Trump's actual fiscal agenda is," they forecast.

"Overnight, senior Republicans pushed back against an aggressive fiscal package, saying that debt levels were already at dangerous levels.

"The market is anticipating a 25-basis-point hike tomorrow and is pricing a 66 per cent chance of another increase before June next year."

The Dow Jones Industrial Average, Nasdaq and S&P 500 all reached fresh record highs, with energy and technology stocks among the gainers.

Exxon Mobil increased nearly 2 per cent after Donald Trump nominated chief executive Rex Tillerson to be the new US Secretary of State.

Italian bank UniCredit rallies on restructure

In Europe, Italy's main index - the FTSE MIB - added 2.5 per cent, driven by banks.

Italy's biggest bank, UniCredit, jumped 16 per cent on a restructuring plan to unload nearly $US19 billion in bad loans, raise nearly $US14 billion in new capital, cut 14,000 jobs and close 944 branches.

The country's banking system is in turmoil, with the third biggest lender, Monte dei Paschi di Siena, facing a state bailout.

The resignation of former prime minister Matteo Renzi after failing to win support for constitutional reform has added to the sense of political instability.

But new prime minister Paolo Gentiloni has kept most former ministers in place in an attempt to reassure financial markets.

Oil prices hold firm on IEA report predicting undersupply

Oil prices rose slightly after the International Energy Agency (IEA) said it expected global oil markets to go from surplus to deficit in the first half of 2017 because of the Organisation of the Petroleum Exporting Countries (OPEC) plan to reduce supply.

The IEA said that demand could outstrip supply by around 600,000 barrels of oil a day.

But that is only if OPEC and non-OPEC producers do actually cut production as promised.

The IEA noted that OPEC's crude oil production reached a new record high last month, rising to a 34.2 million barrels of a oil a day because of increases from Angola, Libya and Saudi Arabia.

Brent crude oil futures first increased but later slipped on the news.

Staying on oil, a leaked internal report from oil major BP found that lax data management exposed its refining operations to safety risks that could lead to fatal accidents and environmental damage.

The report, obtained by environmental group Greenpeace, revealed that the company suffered two near misses that could have been deadly.

The report by BP and engineering firm Worley Parsons said that inadequate management and use of engineering information was a root cause or contributing factor in 15 per cent of 500 high-risk incidents reviewed.

The company has improved its safety performance since the 2010 Deepwater Horizon rig explosion in the Gulf of Mexico which left 11 people dead and caused the biggest environmental disaster in US history.

In response to the leaked report, BP said that it was "committed to safe, reliable and compliant operations."

Spot gold traded around a 10-month low as the Fed met to discuss interest rate policy.

A rise in US interest rates could see a gold sell-off because rising rates will boost the US currency and make gold a less attractive investment.

Some analysts are tipping the gold price could fall to around $US1,140 an ounce.

The Australian dollar rose above $US0.75 overnight with the US currency steady because of uncertainty over future rate rises in the US.

AustraliaPlus


 

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