Iron Ore Continues Bull Run

Both the S&P 500 and Dow Jones opened higher overnight following the passage of the tax bill that will cut the corporate rate to 20% but stocks drifted throughout the day such that the S&P 500 closed slightly down. The Dow managed to hold on to an 0.24% gain. The reduced tax rate does theoretically increase stock valuations although the market was expecting this and had largely priced it in. The Nasdaq 100 fell 1.2%, continuing a weak start to December for the index.

The AUD was flat in overnight trading as the final Reserve Bank board meeting of the year occurs today. No change in rates is expected and the board is likely to maintain a neutral bias in its statement. Australian data hasn’t been particularly strong this year although before the rate statement today we will get retail sales and current account data. Retail sales are expected to be up 0.3% for the month of October.

Oil prices fell around 1.6% even as Venezuela (which holds the worlds largest oil reserves) announced it intends to launch an oil-backed cryptocurrency. Considering that inflation in Venezuela is close to the definition of hyperinflation, a currency backed by oil would be a preferable alternative to the bolivar. Oil is still holding near multi-year highs as the OPEC production cut extension provides support to prices.  

Iron ore has continued its bull run, up another US$2.5 overnight. The surge stems from a decision by Chinese authorities to cut steel output to help curb pollution. Although this reduced iron ore demand in the short term, the drawdown in steel inventories means that a ramp up in production will be required in the medium/long term to replenish inventories.

Data Releases:

-    Australia Current Account 11:30am AEDT

-    Australia Retail Sales 11:30am AEDT

-    Australia Reserve Bank Decision 2:30pm AEDT

To view the Rivkin economic calendar and Local Markets matrix, members can click here.

This article was written by William O'Loughlin - Investment Analyst, Rivkin Securities Pty Ltd. Enquiries can be made via william.oloughlin@rivkin.com.au or by phoning +612 8302 3633.

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