The local sharemarket is looking at a 1% plus jump at the opening this morning after Wall Street ended last week on an up note.
The share price futures contract for the ASX 200 showed a rise of around 70 points when trading ended early Saturday morning, our time.
But despite that upbeat finish, investors here and in Asia and Europe will still be circumspect today, because Wall Street sharemarkets will be closed today for the Martin Luther King holiday and other financial markets will trade electronically on restricted hours.
Investors outside the US play it safe when the US markets are closed or in a reduced trading mode.
The solid gains on Friday night in Europe and the US though belied the volatility of the day the Swiss National Bank ended its currency peg to the Euro.
In fact trading conditions improved Friday in Europe and the US and the strains from the Swiss move the day before seem to have been contained, although shock levels remain high and losses are still being discovered by banks and other forex groups.
Oil prices steadied somewhat as the number of drilling rigs operating in US oil fields again fell for another week and is now at levels last seen in October 2013.
That’s pointing to slowing – even falling – US oil production later in the year, which is seen as positive for oil prices.
Bonds globally benefitted for yet another week from a flight to safety and deflation fears, especially across Europe.
Adding to these worries was the move by the Swiss central bank to abandon the euro peg, and the ECB’s impending decision to expand its easing program by buying bonds.
For many nervy investors those two factors made bonds the only investment and that thinking again saw bond yields fall in the US, across Europe, Japan, the UK and even in Australia.
In fact futures trading in the Australian 10 year government bond pushed yields under the Reserve Bank’s 2.5% cash rate during trading on Friday, which will increase the pressure for a rate cut sooner than later.
Our 10 year bonds yields ended Friday at 2.573%, close to an all time low.
That was despite more signs the local economy continues to make the slow transition from the mining boom in good shape, with the jobs market showing more signs of improvement – which should lessen the need for a rate cut.
Next week’s December quarter Consumer Price Inflation report will be an important interest rate indicator for the RBA to consider at its first board meeting of the year the following week.
Friday night’s gains offshore saw the Aussie dollar ended the week above 82 USc for the first time this year – it closed at 82.23 UScafter touching 82.56c.
That was despite many ‘experts’ claiming the Swiss Bank’s abandonment of the euro peg would send our dollar lower.
The AMP’s Chief economist Dr Shane Oliver wrote at the weekend that for Australia, “the Swiss gyrations underline the problem that outside the US lots of countries would like to get their currencies down making it harder for the $A to fall on a trade weighted basis (TWI) which in turn means it will have to fall further against the $US”.
In fact the Aussie dollar has risen in the first two weeks of 2015 – it ended 2014 at 82.03 USc and on 66.40 for the TWI. On Friday it closed at 82.23 in New York and the TWI was on 66.8.
In New York, Friday’s gains on Wall Street halved the week’s losses for US markets.
The S&P 500 closed up 26.75 points, or 1.3%, at 2,019.42, but was down 1.2% over the week. The Dow jumped 190.86 points, or 1.1%, to 17,511.57, but lost 1.3% over the week, and the Nasdaq Composite ended with a gain of 63.56 points, or 1.4%, at 4,634.38, and sustained a 1.5% weekly loss.
Japanese shares fell 1.9% and Australian shares lost 3%, one of the biggest weekly falls for more than a year.
European shares bucked the trend and rose 4.6% over the last week on expectations for ECB quantitative easing and Chinese shares rose 2.8% and have started 2015 as they finished 2014 – charging ahead and ignoring the weak domestic economy.
US shares have fallen 1.9% year to date, but European shares have been outperforming and are up 1.8% for the year so far in 2015, thanks to those expectations the ECB will boost its easing program (and despite continuing fears about terrorism and the impending Greek election next Sunday).
