Key Data for the Week
Key economic data released this week:
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.
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%.
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.
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