Also on this week’s radar are renewed high-level trade talks between US and Chinese officials in Beijing. President Donald Trump last week of course dented optimism that a deal could be reached ahead of his March 1 deadline to lift tariffs ever higher on Chinese goods shipped to the US.
Wall Street closed mixed on Friday as relief over first-quarter reports turned slightly to speculation of a pending earnings recession.
The S&P 500 has risen more than 15 per cent from 20-month lows in December, spurred by a dovish Federal Reserve and largely positive fourth-quarter earnings, as well as hopes for an eventual US-China trade deal. Talks resume in Beijing later this week.
Of the S&P 500 companies that have reported quarterly results, 71.5 per cent have beaten profit estimates, according to IBES data from Refinitiv.
Global bond yields mostly continued to reset lower with Germany’s 10-year note sliding three basis points to 0.08 per cent. The US equivalent dipped two basis points to 2.63 per cent. On Friday, Australia’s 10-year note yield shed 5 basis points to 2.10 per cent to its lowest since early October 2016.
As markets reset in the wake of the Federal Reserve’s dovish tilt, PIMCO economist Tiffany Wilding said she thinks there’s more to the policy shift than market volatility or political pressure.
“Policymakers are now faced with the possibility that the current level of the federal funds rate (2.25%–2.5%) is the terminal level of this cycle. This is important because it implies that, in the event of an economic downturn, the Fed has less room to stimulate the economy by cutting interest rates before hitting the effective lower bound.
“A more limited capacity of conventional monetary policy tools to offset an economic downturn strengthens arguments that the Fed should take additional steps to combat the limitations of the effective lower bound when times are good. One possible way to do this is by not only tolerating an inflation overshoot, but targeting it.”
No local data.
Overseas data: UK fourth quarter GDP, Industrial production December, CPI January.
SPI futures down 4 points to 6007
AUD -0.2% to 70.88 US cents
On Wall St: Dow -0.3% S&P 500 +0.1% Nasdaq +0.1%
In New York, BHP +0.5% Rio -0.4% Atlassian +1.9%
In Europe: Stoxx 50 -0.5% FTSE -0.3% CAC -0.5% DAX -1.1%
Spot gold +0.5% to $US1316.61 an ounce on Friday in New York
Brent crude +0.8% to $US62.10 a barrel
US oil +0.2% to $US52.72 a barrel
Spot iron ore to resume trading today
Iron ore futures SGX +3.5% to $US92 a tonne
LME aluminium -0.7% to $US1880 a tonne
LME copper -0.6% to $US6210 a tonne
2-year yield: US 2.47% Australia 1.66%
5-year yield: US 2.44% Australia 1.70%
10-year yield: US 2.63% Australia 2.10% Germany 0.08%
US-Australia 10-year yield gap: 53 basis points
From Today’s Financial Review
Election on banks and boatpeople: Scott Morrison will launch the second arm of his re-election pitch by claiming superior national security credentials. Labor wants the focus on banks.
Cashing in on refugees for $20 million a month: The government has quietly extended one of its most controversial contracts, paying little-known Paladin Group an extra $109 million for security services on Manus Island.
Robert Doyle accuser takes complaint to police: Melbourne lord mayoral saga is legal minefield, but also shows workplace health and safety implications of harassment claims.
The benchmark S&P 500 index and the Nasdaq edged upward to snap a two-day losing streak on Friday as positive corporate results offset lingering scepticism over the United States and China reaching a trade deal before the March 1 deadline.
For the week, the Dow added 0.17 per cent, the S&P 500 rose 0.05 per cent, and the Nasdaq gained 0.47 per cent.
Analysts expect first-quarter earnings for S&P 500 companies to decline 0.1 per cent from a year earlier, which would be the first quarterly profit decline for the group since 2016, according to IBES data from Refinitiv.
The latest forecast is down sharply from the start of the year, when analysts estimated growth of 5.3 per cent for the quarter.
Negative estimates tend to hurt investor sentiment, even if the actual earnings numbers show profit growth, said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama.
“If the discussion turns to earnings recession, that’s not going to help stock prices, whether it occurs or not,” he said.
Second-quarter S&P 500 earnings are expected to increase 3.6 per cent from a year earlier, while profit growth for all of 2019 is estimated at 4.3 per cent, based on Refinitiv data.
European stocks slipped again on Friday and put an end to five straight weeks of gains.
The pan-European STOXX 600 lost 0.5 per cent on the day and 0.4 per cent on the week. Germany’s exporter-heavy DAX sustained heavy losses among regional bourses and retreated a little over 1 per cent.
“The trade issue is more in focus in the short term. Macro data over the last few weeks hasn’t given any reason to be more concerned about a recession than a month or two ago,” said Paul Harper, equity strategist at DNB.
“The cycle is pretty mature now but it’s always pretty difficult to know how close to a recession you are when indications are not showing signs that it’s around the corner,” he added.
Among disappointing trading updates was Belgium’s Umicore , which lost 7.3 per cent after saying it expected 2019 growth to be hit by subdued demand in cars and consumer electronics, and R&D costs.
Trade-sensitive autos fell 2.2 per cent, extending losses from Thursday, when the sector suffered its biggest one-day drop since the Brexit vote aftermath in June 2016.
Tata Motors warned that Jaguar Land Rover would swing to a loss due to weak sales. That news demand weighed on auto suppliers Valeo and Faurecia, down 2.6 to 3.0 per cent.
Adding to the negativity around autos, German car wiring supplier Leoni sank 32 per cent after delivering a significant miss to fourth-quarter earnings expectations.
Hong Kong stocks ended weaker on Friday as the absence of any positive signs for a resolution in the US-China trade row dented sentiment, but the market pared losses as investors eyed support from A-shares, which will resume trading next week.
At the close of trade, the Hang Seng index was down 0.2 per cent at 27,946.32 points, while the Hang Seng China Enterprises index fell 0.7 per cent. Energy shares shed 1.4 per cent as oil markets slipped on concerns over a global economic slowdown.
Trading in mainland Chinese stocks resumes today.
US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin are expected in Beijing this week for a new round of trade talks with Chinese officials.
Japan’s Nikkei closed at a one-month low on Friday. The Nikkei share average sank 2 per cent, its biggest one-day loss since early January, to 20,333.17, its lowest closing level since January 10. For the week, the Nikkei shed 2.2 per cent.
According to Daiwa Securities, out of 200 major companies it covers, 117 reported their third-quarter results as of February 6 – and 31 of those cut their annual forecasts on a pretax profit basis.
On Friday, Nikon dived 12 per cent after it reduced the annual operating profit forecast for its imaging business on struggling camera and chip equipment operations, hit by falling demand in China.
Risk aversion among investors dragged down cyclical stocks such as machinery firms that have large exposure to China. Fanuc tumbled 4 per cent, Komatsu 3 per cent and Hitachi Construction Machinery 4.4 per cent.
Bucking the weakness, Sony surged 4.1 per cent after it announced a share buyback of ¥100 billion – its first aimed at boosting shareholder returns.
German bunds still beat US Treasuries: German bunds a better bet than US Treasuries because the current cost to hedge currency risk is prohibitively expensive.
$US posts best week in six months: Traders piled into the greenback in a safe-haven move on worries about a weakening global economy.
Flash crash: Mrs Watanabe and algorithms crashed the Australian dollar: At 9:36am on Thursday January 3, financial market traders looked in astonishment at their screens as the Australian dollar plunged a whopping 3 per cent to a 10-year low in the space of just two minutes. Here’s why.
Benchmark copper on the London Metal Exchange (LME) closed down 0.6 per cent at $US6210 a tonne, but was still up around 1.2 per cent on the week after touching a two-month high of $US6289.50 on Thursday.
“New concerns about the trade dispute are clearly weighing on prices,” said Commerzbank analyst Daniel Briesemann, adding that an escalation could send copper back towards January’s 1-1/2 year low of $US5725 a tonne.
But he said that, if the two sides reach a deal, copper could rise as high as $US6800 in the second quarter, helped by supply shortfalls.
Russia’s Rusal said it expected aluminium demand to grow in 2019 and saw potential for prices to rise. It said production outside China was flat at 27.6 million tonnes in 2018 while demand rose by 2.8 per cent to 30 million tonnes.
“The aluminium market is in heavy deficit and demand is set to improve, the aluminium price has upside potential,” Rusal said, adding that its 2018 average aluminium price rose by 7.3 per cent to $US2259 per tonne.
It said the aluminium market faced supply disruptions and soaring production costs, while about 50 per cent of production facilities outside China and 60 per cent in China were making a loss based on current London prices and average market premiums.
LME aluminium ended down 0.7 per cent at $US1880 a tonne, zinc fell 1 per cent to $US2704, lead closed unchanged at $US2080 and tin rose 0.5 per cent to $US21,050.
Nickel, which had seen the biggest rally of any industrial metal in recent weeks, finished down 3.2 per cent at $US12,570 a tonne, falling below its technically important 200-day moving average.
ASX has best week in over two years, $A suffers: The sharemarket advanced to its best week since November 2016, as solid earnings, the banking royal commission and RBA pushed stocks higher.
with Reuters, Bloomberg, AAP
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