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Category: Stockmarket / Currency / Futures / Markets

Wall St mixed as energy gains offset defence dive

Tuesday, 13 Dec 2016 05:49:33 | Sue Lannin

The Dow Jones Industrial Average closed a little higher, but the broader S&P 500 fell slightly. (Reuters)

Oil prices are continuing to ride high after Saudi Arabia indicated it will cut production by more than previously agreed and more oil producers said they would cooperate to reduce output.

Markets at 8:15am (AEDT):

  • ASX SPI 200 futures -0.4pc 5,554
  • AUD: 74.88 US cents, 59.08 British pence, 86.10 Japanese yen, 70.36 euro cents, $NZ1.0414
  • US: S&P 500 -0.1pc to 2,257, Dow Jones +0.2pc to 19,796, Nasdaq -0.6pc to 5,412
  • Europe: Euro Stoxx -0.02pc to 341.67, FTSE -0.92pc to 6,890, DAX -0.12pc to 11,190
  • Commodities: Gold +0.38pc to $US1,162.38/ounce, Brent crude oil +1.77pc to $US55.29/barrel, iron ore +$US1.92 to $US83.58/tonne

At a weekend meeting in Vienna, the oil producers cartel - the Organisation of the Petroleum Exporting Countries - convinced Russia, Mexico and nine other oil producers to cut production in 2017.

Russia agreed to cut supply by 558,000 barrels a day, the largest non-OPEC contribution ever.

It is the first agreement since 2001 made by OPEC and its rivals to jointly reduce supply.

Brent crude oil futures rose as much as 6.5 per cent to $US57.89 a barrel - the highest price since July last year.

Oil prices have jumped by nearly one quarter since the middle of last month on hopes that OPEC would cut production to reduce a supply glut and drive up prices.

OPEC agreed late last month to cut output by 1.2 million barrels of oil per day for six months from January 1.

The risk is that higher oil prices will encourage other producers to re-enter the market, including shale operators in the US.

ANZ analysts also pointed out that Libya, Nigeria and Angola are exempt from the OPEC agreement, which will put more pressure on the other OPEC producers to comply.

The rise in oil prices boosted energy stocks on Wall Street, as the major indices traded around their record highs, although technology and financial stocks lost ground.

Lockheed Martin leads defence dive on Trump's F-35 tweet

Shares in US defence contractor Lockheed Martin plunged 5 per cent after US President-elect Donald Trump criticised the F-35 fighter jet program as too expensive.

The market value of Lockheed Martin fell by $US4 billion after Mr Trump tweeted, "The F-35 program and cost is out of control."

He also said that billions of dollars can, and will, be saved on military purchases after he comes to office on January 20.

Shares in other defence contractors, including General Dynamics, Northrop Grumman, Boeing, BAE and Raytheon also fell.

The head of the F-35 program for Lockheed Martin, Jeff Babione, said in response to Mr Trump's tweet that the company understands concerns about price and plans to reduce the cost by 60 per cent from original estimates.

"We project it to be about $US85 million in the 2019 or 2020 time frame," he told reporters in Israel.

But the F-35 program has been beset with problems and cost overruns.

In early November, the US Defence Department and Lockheed Martin signed their ninth contract for 90 F-35 fighter jets in a contract worth up to $US7.18 billion.

Reuters reported the Pentagon is paying about $US102 million for each of the conventional take-off A-model jets being built for the US Air Force, Israel and other countries.

Australia is also among the countries that will buy the jets.

Last week, Mr Trump blasted aircraft maker Boeing on Twitter, saying its costs on a new fleet of Air Force One planes were also out of control and he urged the US Government to cancel the order.

Fed rate rise prospects push down gold prices

In Europe, the FTSE 100 in London hit a one month high before losing ground partly because of weaker gold prices pulling down gold mining stocks.

Spot gold fell to the lowest level in 10 months at $US1,151 an ounce on expectations the US central bank, the Federal Reserve, will increase official interest rates when it meets this week.

Those expectations saw the yield on 10-year US Treasury bonds briefly trading above 2.50 per cent.

Higher interest rates make gold's appeal as a safe haven and hedge against deflation less attractive.

It came off its lows after the greenback dropped ahead of the Federal Reserve meeting tonight and Wednesday, amid concerns the central bank could signal the US dollar's gains had gone too far.

The Fed is expected to increase interest rates for just the second time in ten years and investors will be closely scrutinising its statement for clues on the timing of future rate increases.

The target range for the Federal Funds Rate, the benchmark US interest rate, is currently at 0.25 to 0.50 per cent.

IG Markets strategist Chris Weston said the Fed could pencil in another rate hike next year which could see bonds and gold sold off.

"The question we are asking is whether the Fed acknowledge not just the improvement in the recent data flow, but also the view that we could see fiscal measures complimenting an already stretched central bank balance sheet," he noted.

"The key will then be whether they increase their 2017 and more likely 2018 GDP forecasts from 2 per cent respectively.

"Clearly the moves today suggest traders don't see this more hawkish stance materialising and that the Fed are likely to maintain a slow and steady course on tightening policy."

The Australian dollar rose on the lower greenback.

AustraliaPlus


 

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