Things to watch on the ASX today

Australian Stock Markets

Will the market be able to bounce back on Tuesday? Here are five things that could shape today’s trade:

The S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) started the new financial year with a day in the red on Monday. It gave back its early gains to finish the day down 0.3% to 6,177.8 points.

ASX expected to open the day higher.

According to the latest SPI futures, the local market is expected to open the day higher by 0.3% or 21 points on Tuesday. This follows a positive night of trade on Wall Street which saw U.S. markets rebound from early declines to push notably higher. The Dow Jones Industrial Average rose 0.15%, the S&P 500 climbed 0.3%, and the NASDAQ pushed almost 0.8% higher.

Reserve Bank of Australia meets today.
The Reserve Bank of Australia will meet at 14:30 AEST today to discuss the cash rate. Think there is not a single economist in the country that expects the central bank to make a move on rates.

In fact, the consensus appears to be for rates to remain on hold at the record low of 1.5% until at least the end of 2019.

Toll road operator Atlas Arteria announces fees.

The shares of Atlas Arteria Group (ASX: ALX), formerly known as Macquarie Atlas Roads, will be on watch on Tuesday after providing its final performance fee. According to the release, a final performance fee was earned by Atlas Arteria’s manager, Macquarie Fund Advisers, for the 12 months ended 30 June 2018.

During this period, the company outperformed the S&P/ASX 300 Industrials Accumulation Index by 10.8%, resulting in a 2018 performance fee of $54.7 million. The 2018 performance fee will be payable in one instalment.

Oil prices give back gains.
Oil prices have taken a tumble overnight after data revealed a surprise rise in output from Saudi Arabia and Russia. The WTI crude oil price has fallen 0.1% to US$74.06 a barrel and the Brent crude oil price is down 2.3% to US$77.39 a barrel.

This could put pressure on the shares of Santos Ltd (ASX: STO) and Woodside Petroleum Limited (ASX: WPL).

Amaysim shares tipped as a buy.
According to a note out of Goldman Sachs, its analysts have retained their buy rating and placed a $1.30 price target on Amaysim Australia Ltd (ASX: AYS) shares.

Despite the company suffering a slowdown in subscriber growth, the broker sees a lot of value in its shares at the current level.

Australia will be the last to raise rates, says $100b global investor

Australian bonds are a buy because the Reserve Bank will keep interest rates at a record low for at least the next six to 12 months, according to Morgan Stanley Investment Management. The company is avoiding the Aussie dollar for the same reason.

"The RBA is the furthest away from hiking rates amongst any industrialised countries," Michael Kushma, chief investment officer for global fixed income, said in an interview in Singapore.

"That could allow Australian bonds to continue to do well versus US bonds and other Group-of-10 government bonds.''

While the RBA will probably stay on hold for the rest of this year, the US Federal Reserve is going to increase its benchmark rate at least three times over the next 12 months to 2.5 per cent, said Kushma, who helps oversee $US80 billion ($100.5 billion) for the New York-based asset manager.

Australia's bonds have outperformed most developed-nation debt this year, staying little changed, even as US Treasuries have slumped 2.3 per cent, according to data compiled by Bloomberg.

The South Pacific nation's benchmark 10-year note yields 2.84 per cent, 17 basis points below their US peers, compared with an average premium of 68 basis points during the past five years.

Kushma said he dislikes the Aussie dollar for the same reason he favours Australia's bonds.
Australian short-term interest rates are below those in the US, he said.

"You pick up yield by selling the Australian dollar for the US dollar, you actually earn incremental yield. It's the cheapest it's ever been to sell the Australian dollar today.''

Market watch

Today, the Reserve Bank of Australia will release their semi-annual Financial Stability Report. The RBA is expected to reiterate that domestic risks remain benign, but that household leverage is still a concern that could impede future growth. On Monday, the RBA's Minutes from their April meeting will likely echo with Philip Lowe said in a speech this week that there was no 'strong case' to move interest rates and that any trade war would post a great risk to Australian exports.

SPI futures up 18 points or 0.3% to 5815 at about 7.15am AEST

AUD flat at 77.53 US cents

On Wall St: Dow 1.2%, S&P 500 +0.8%, Nasdaq +1%

In New York, BHP +0.3% Rio +1.4%

In Europe: Stoxx 50 +0.7%, FTSE flat, CAC +0.6%, DAX +1%

Spot gold -1.1% to $US1339.06 an ounce at 1.16pm New York

Brent crude -0.4% to $US71.74 a barrel

US oil -0.1% to $US66.75 a barrel

Iron ore -0.5% to $US64.47 a tonne

Dalian iron ore -0.2% to 447 yuan

LME aluminium +3.3% to $US2325 a tonne

LME copper -1.9% to $US6821 a tonne

10-year bond yield: US 2.84%, Germany 0.51%, Australia 2.66%

Australia & NZ dollars defensive as trade talk dominates

New Zealand Stock Markets

The Australian and New Zealand dollars stayed on the defensive on Monday as rumblings about a world trade war curbed risk appetites and overshadowed the upbeat part of domestic economic data.

The Aussie dollar was off 0.18 percent at $0.7748 and uncomfortably near to recent two-month lows at $0.7713.

The kiwi eased 0.35 percent to $0.7218 and closer to support around $0.7184.

Both countries have open commodity exporting economies that benefit substantially from free trade, making them vulnerable should U.S. President Donald Trump's threat of tariffs lead to a round of tit-for-tat reprisals.

 Lost in the noise was Australian data showing strength in vehicle sales, job ads and approvals to build new homes that augured well for continued economic growth this year.

 Figures due Wednesday are forecast to show Australia's A$1.8 trillion gross domestic product (GDP) expanded by around 0.6 percent in the December quarter.

That would see annual growth slow to 2.5 percent, from 2.8 percent, but it would still mark more than 26 years without a technical recession.

 The Reserve Bank of Australia (RBA) holds its March meeting on Tuesday and is thought certain to keep rates at 1.5 percent and signal it is no rush to hike anytime soon.

 For the kiwi, the next test will be a global auction for dairy, the country's main goods export, which could weigh if prices slip as analysts expect.

New Zealand government bonds eased, sending yields 4.5 basis points higher.

Australian government bond futures recouped early losses as risk aversion slugged stocks across Asia.

The three-year bond contract edged up half a tick to 97.935, while the 10-year contract was off 1 tick at 97.2700

RBNZ increases Westpac NZ's capital requirements to meet regulatory capital requirements

New Zealand Stock Markets

The Reserve Bank has given Westpac NZ, the government's bank, 18 months to get its capital in order after an independent report found the bank to be using a series of unapproved capital models. 

A series of errors in Westpac's capital modelling dating back as far as eight years meant the bank breached its conditions of bank registration.

Westpac, along with New Zealand's other Australian owned banks, is allowed to develop its own models to quantify required capital for credit risk and then get these approved by the Reserve Bank.

All other NZ banks have the Reserve Bank prescribe their credit risk measurements. However, the Reserve Bank says Westpac used a number of models that had not been approved by the Reserve Bank, and "materially failed" to meet requirements around model governance, processes and documentation.

Operating as an internal models bank is a privilege that requires high standards and comes with considerable responsibilities. Westpac has not met our expectations in this regard, Reserve Bank Deputy Governor and Head of Financial Stability Geoff Bascand says.

The Reserve Bank required Westpac to commission an independent report into its compliance with internal models regulatory requirements. The report found Westpac currently operates 17 out of 35 unapproved capital models, has used 21 out of 32 additional unapproved capital models since it was accredited as an internal models bank in 2008, and failed to put in place the systems and controls an internal models bank is required to have under its conditions of registration.

The regulator has decided Westpac NZ’s conditions of registration will be amended to increase its minimum capital levels until its shortcomings and non-compliance are remedied.

Westpac’s minimum capital ratio requirements will be 6.5% for Common Equity Tier 1 [CET1] capital, 8% for Tier 1 capital and 10% for Total capital, with the additional 2.5% capital conservation buffer applying. Currently, for all other locally incorporated banks capital ratios are set at, respectively, 4.5%, 6% and 8%, plus the 2.5% buffer, the Reserve Bank says.

In addition, the Reserve Bank has accepted an undertaking by Westpac to maintain its total capital ratio above 15.1% until all existing issues have been resolved. The Reserve Bank has given Westpac 18 months to satisfy the Reserve Bank that it has sufficiently addressed those issues or it risks losing accreditation to operate as an internal models bank.

Australia non-mining investment on the mend: RBA

Australian Stock Markets

There are increasing signs business investment in Australia is picking up outside the resources sector thanks to growth in services and infrastructure spending, a timely support to the broader economy

 

According to the Deputy Governor, Guy Debelle  of Reserve Bank of Australia (RBA) recent revisions to economic data showed non-mining investment had been stronger than previously thought over the last couple of years. 

Growth has been concentrated in the services sector, including healthcare, telecoms and media. Public spending on infrastructure has also picked up markedly and is spilling over into investment in the private sector, said Debelle. 

That was a timely development as a boom in mining spending that stretches back more than a decade is almost at an end, he added.

Aussie takes RBA hold in stride - Dollar sags as U.S. yields slip

Australian Stock Markets

The dollar sagged on Tuesday, knocked away from an eight-month highs versus the yen down as Treasury yields slipped on uncertainty over whether the Republicans can pass their tax bill in a timely manner. 

The Australian dollar held steady, showing little response to the Reserve Bank of Australia’s (RBA) well-anticipated decision to stand pat on monetary policy. The dollar index against a basket of six major currencies was a shade lower at 94.729 .DXY, slipping slightly from a 10-day peak of 95.077 reached on Monday. Against the yen, the dollar nudged up 0.15 percent to 113.870 yen JPY=, but still some distance from 114.735 struck the previous day, its highest since mid-March.

The euro was steady at $1.1613 EUR= following its descent to a 10-day trough of $1.1580 overnight.

The greenback had been solid after strong U.S. services and factory data issued before the weekend backed expectations for the Federal Reserve to raise interest rates next month and tighten further in 2018.

But the currency sagged as such expectations failed to lift Treasury yields. The benchmark 10-year yield US10YT=RR has slipped steadily toward 2.30 percent after peaking at a seven-month high of 2.47 percent in late October.

Doubts over whether U.S. Republicans could pass their tax plan have helped bring down long-term Treasury yields. The uncertainty dims hopes for faster economic growth, and there are worries about the scale of borrowing needed to finance the tax plan.

Australia’s central bank on Tuesday left its cash rate at a record low 1.5 percent, and signs indicated it would stay sidelined for months in the face of stubbornly low inflation and caution among debt-laden consumers.

The RBA eased twice last year but has since held steady as it balances the risk of fuelling further borrowing in the country’s red-hot property market against tepid inflation. The Australian dollar was little changed at $0.7692 AUD=D4 after gaining about 0.5 percent the previous day against the broadly weaker dollar. Other commodity currencies also performed well with oil prices climbing to 2-1/2-year highs this week amid political purges in Saudi Arabia.

The New Zealand dollar was nearly flat at $0.6938 NZD=D4 after gaining nearly 0.6 percent overnight to pull further away from a five-month low of $0.6818 reached at the end of October on political uncertainty.

Global shares rise, euro near 14-month high ahead of ECB

World shares extended a run of record highs on Thursday, as a cautious sounding Bank of Japan lifted Asian stocks to a near decade peak and Europe wagered on an incremental increase in confidence from the ECB at its latest meeting. 

The euro was near a 14-month high and investors were riding a global rally in stocks as Asia's and then Europe's early 0.4 percent gains .FTEU3 ensured MSCI's 47-country All World index .MIWD00000PUS was up for a 10th straight session. 

It is its longest winning streak since February 2015 and was showing little sign of fatigue even as bond yields - the key driver of global borrowing costs - edged higher again. [GVD/EUR] 

They were lifted as oil prices LCOc1 held near 2 percent gains made the previous session when falling U.S. crude inventories gave the market a lift ahead of a key OPEC meeting next week.

The day's focus though was squarely on the Japanese central bank's decision to push back its ambitious inflation target again and on whether European Central Bank head Mario Draghi would give a hint later that it plans to wind down its 60 billion-euro-a-month stimulus programme.

ECB President Draghi opened the door to policy tweaks in a speech last month that was viewed as unexpectedly hawkish, sending the euro EUR= and government bond yields rallying. 

The euro EUR= is up almost 10 percent so far this year but and was a shade lower at $1.1513 ahead of Draghi's 1230 GMT post-meeting news conference, having hit a 14-month high of $1.1583 on Tuesday.

The yen meanwhile had weakened to 112.135 yen per dollar JPY=D4 after the BOJ pushed back its projected timing for hitting its 2 percent inflation target until 2020. 

With both its main rivals down, the dollar rose for a second straight day climbing 0.3 .DXY against a broader basket of trade-weighted peers. 

The other main mover was the Australian dollar AUD=D4 as it set a new two-year high, still heady from an upbeat sounding Reserve Bank of Australia earlier in the week. It eventually pulled back to trade at $0.7939 in Europe. 

In commodities, Brent crude futures LCOc1, the international benchmark for oil prices, were flat at $49.75 per barrel. U.S. West Texas Intermediate (WTI) futures CLc1 also barely budged at $47.18.

Gold XAU= slipped to $1,237 an ounce as the dollar pulled higher, while government bonds, also seen as safe-haven assets, saw modest selling ahead of the ECB meeting.

Market set to open sharply higher

THE Australian market looks set to open sharply higher, following strong gains on Wall Street on the view the Federal Reserve might raise its key interest rate in March.

At 0700 AEDT on Wednesday, the share price futures index was up 26 points, or 0.45 per cent, at 5,765.

Wall Street has been stoked by hopes of tax cuts, infrastructure spending and looser regulations from U.S. president Donald Trump and a Republican-controlled Congress.

Details on U.S. fiscal stimuli remain sketchy, but investors seem patient for progress on these possible programs as they have been assuaged by upbeat company results.

Locally, in economic news on Wednesday, Reserve Bank of Australia governor Philip Lowe is slated to speak at the Australia-Canada Economic Leadership Forum in Sydney.

The Australian Bureau of Statistics releases the wage price index, and construction work done data, both for the December quarter.

In equities news, Woolworths, Fairfax Media, Coca-Cola Amatil, IAG, Fortescue Metals, Woodside Petroleum and AP&N News & Media are among the companies expected to report earnings.

The Australian market on Tuesday closed flat as a flurry of earnings reports resulted in a mixed performance from many sectors.

The benchmark S&P/ASX200 index fell 4.1 points, or 0.07 per cent, to 5,791 points.

The broader All Ordinaries index lost 5.1 points, or 0.09 per cent, to 5,835.4 points.