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Category: Stockmarket / Currency / Futures / Markets

Morning markets: US stocks fall on oil prices, monetary policy 'tantrum'

Wednesday, 14 Sep 2016 05:58:44 | Michael Janda

A survey shows 54 per cent of traders believe stocks and bonds are overvalued. (REUTERS: Brendan McDermid)

Cash is king again on global markets, with US and European shares having slipped on falling oil prices, while government bonds were also sold off.

Markets at 8:00am (AEST):

  • ASX SPI 200 futures -0.2pc to 5,167
  • AUD: 74.6 US cents, 66.5 euro cents, 76.5 Japanese yen, 56.5 British pence, $NZ1.029
  • US: Dow Jones -1.4pc to 18,067, S&P 500 -1.5pc to 2,127, Nasdaq -1.1pc to 5,155
  • Europe: EuroStoxx -1.3pc to 2,975, FTSE 100 -0.5pc to 6,666, DAX -0.4pc to 10,387
  • Commodities: Iron ore -2.3pc $US56.20/tonne, Brent crude -2.2pc to $US47.22/barrel, spot gold -0.7pc $1,319/ounce

A Bank of America survey showed investors ramping up their cash holdings to near the highest level in 15 years.

All that cash is coming out of stocks and bonds, with more than half those surveyed saying both are overvalued.

Wall Street's benchmark S&P 500 index dropped 1.5 per cent, erasing yesterday's bounce from Friday's even steeper 2.5 per cent fall.

The blue chip Dow Jones Industrial Average posted a similar decline, while a 2.7 per cent gain by tech giant Apple helped limit the Nasdaq's fall.

The biggest contributor to the share price decline was the energy sector, after a steep slide in oil prices.

Both the International Energy Agency and OECD warned that the oil glut would persist, driving the benchmark Brent crude price down more than 2 per cent.

European share markets were also down across the board, with falls of around half a per cent for Germany's DAX and London's FTSE.

But it was not just stocks and oil on the nose.

Bond prices continued their recent fall, as investors start demanding higher interest rates to lock up their money with governments, especially over the longer term.

Interest rates on the benchmark 10-year US Treasury note rose to their highest level in three months, up 0.06 percentage points to 1.72 per cent, as investors feared that central banks have come to the end of the road that they have been kicking the can down with monetary stimulus.

Markets throw 'tantrum' as central banks reach end of their rope

Thomas Roth, a senior Treasury trader at MUFG Securities America in New York, told Bloomberg that "there is concern the banks could pull away" from monetary stimulus programs, such as record low interest rates and various forms of asset purchases and money printing.

"There is a new theme that central banks are sort of at the end of their rope," he said.

ANZ's analysts said the recent turbulence shows how fragile markets obsessed with cheap money from central banks can be.

"Will this tantrum continue? Who knows?" they asked rhetorically in their morning note.

"If past behaviour holds, then central banks will just cave in and attempt to settle things by providing more of the liquidity sugar pill.

"We were interested to read unconfirmed reports from the Nikkei overnight that the BoJ is set to explore delving deeper into negative rates.

"But it certainly doesn't feel sustainable. And when markets are not really being driven by fundamentals, like they arguably aren't at present, 'animal spirits' can take over."

But, with the local market already in the red yesterday, Australian futures are pointing to a only modest decline today.

IG chief market strategist Chris Weston is expecting a bigger fall, around half a per cent, based on overnight moves in BHP Billiton and CBA securities.

"It must be said though that price action here in Australia yesterday was terrible and, as mentioned in yesterday's note, we specifically wanted to see if traders' and investors would use the opening bounce in the market to offload stocks. Offload they did!"

Australian shares will not be assisted by a 2.3 per cent slide in Chinese iron ore spot prices yesterday, with gold also under pressure.

The Australian dollar got pounded overnight, dropping a cent to 74.6 US cents.

Today's agenda:

Australia:
  • Westpac consumer confidence index – September (10:30am)
  • RBA deputy governor Guy Debelle speaks in London – (8:00pm)

UK:
  • Employment – July (6:30pm AEST)

Japan:
  • Industrial output – July (2:30pm AEST)

AustraliaPlus


 

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