Morning Market Update - 7 June 2019

Pre-Open Data

International Markets vs Australian Market

Key Data for the Week

Key economic data released this week:

  • Thursday – AUS – Trade Balance – The trade surplus held at $4.9 billion in April, just shy of the record high of $5.0 billion in February.
  • Thursday – EUR – ECB Interest Rate Decision – The ECB signalled interest rates were likely to stay at current levels through to mid-2020, longer than indicated previously.
  • Thursday – EUR – Gross Domestic Product – GDP growth for the March quarter was unrevised at 0.4%, while year on year growth was 1.2%.
  • Thursday – US – Trade Balance – The trade deficit narrowed from US$51.9 billion in March to US$50.8 billion in April, but reflected both exports and imports declining.
S&P ASX 200 Last 12 Months

Australian Market

The Australian sharemarket rose for a third straight day, to close 0.4% higher. The gains were widespread, led by Utilities and REIT stocks, with Energy and Materials the only sectors to close in the red. 

The big four banks all posted gains for the second consecutive session. Westpac was the best performer, closing up 0.8%, while ANZ climbed 0.5% and Commonwealth Bank and NAB both lifted 0.4%.

Telstra boosted the Telecommunications space, closing up 1.1%, while Consumer Staples heavyweights Woolworths and Wesfarmers ended the session 0.4% and 2.0% higher respectively.

The Australian futures market points to a 0.44% rise today. 

Overseas Markets

European sharemarkets were mixed on Thursday, as the European Central Bank’s decision to keep rates on hold matched investors’ expectations and contributed to a stronger currency. The UK FTSE 100 rose 0.6%, the broad based STOXX Europe 600 was flat and the German DAX fell 0.2%. 

US sharemarkets rose on Thursday, boosted by positive investor sentiment on growing expectations of a supportive US central bank and following a Bloomberg report that stated the US was considering delaying tariffs on Mexico. However, President Trump raised the possibility of introducing an additional US$300 billion worth of Chinese tariffs, with a decision to be made "probably right after the G20" meeting later this month. By the close of trade, the Dow Jones rose 0.7%, the S&P 500 gained 0.6% and the NASDAQ climbed 0.5%. 

CNIS Perspective

With the iron ore price soaring throughout 2019 so far, it is interesting to re-visit the traditionally close link between the Australian Dollar and Australia's number one export.

Historically, the AUD and iron ore price have often moved in tandem. However, as the graph below shows, we have seen a large divergence in recent months. While the iron ore price is moving in an upward trajectory, the AUD has hardly budged from its downward trend.

This has eventuated from a perfect storm of factors. 

On one hand, China, the world's largest consumer of iron ore, is running down its stockpiles, at a time when unexpected mine closures in Brazil have significantly disrupted supply. This supply crunch, has seen the iron ore price spike to the highest level since 2014, nudging the US$100 tonne mark. 

On the flip side, the AUD has been put under pressure by a weakening domestic economic outlook and a change in interest rate expectations from neutral to falling. 

While the iron ore price and the AUD can experience periods of separation, at some stage we would expect the trend lines to re-converge.

AUD v Iron Ore

Should you wish to discuss this or any other investment related matter, please contact your Investment Services Team on (02) 4928 8500.


The material contained in this publication is the nature of the general comment only, and neither purports, nor is intended to be advice on any particular matter. Persons should not act nor rely upon any information contained in or implied by this publication without seeking appropriate professional advice which relates specifically to his/her particular circumstances. Cutcher & Neale Investment Services Pty Limited expressly disclaim all and any liability to any person, whether a client of Cutcher & Neale Investment Services Pty Limited or not, who acts or fails to act as a consequence of reliance upon the whole or any part of this publication.

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Topics: CNIS, Dow Jones, Australian Market, ASX, international markets

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