The Overnight Report: China Stimulus

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China took centre stage overnight with an investigation into Nvidia spooking investors out of technology stocks and the promise of more stimulus directing money flows into commodities yet again.

SPI futures are suggesting a positive opening for the ASX this morning led by index heavyweights BHP Group and Rio Tinto.

Good morning.

US equities retreated overnight but today’s price action locally will be all about China stimulus and commodities.

The RBA meets today but virtually no-one is expecting anything different from the prior meetings.

Economists and traders will be looking to see if the post-meeting statement includes the references from the November minutes to the need for policy to be forward-looking and there being no immediate need to change the cash rate.

Industrial metal prices rebounded following China’s announcement to deploy more stimulus.

The Politburo statement included more proactive fiscal policy, moderately loose monetary policy, extraordinary counter-cyclical adjustments to boost consumption forcefully and to stabilise property and the stock market.

Economists at ANZ Bank comment these point to strong fiscal expansion, big rate cuts and asset buying, which will support growth and, in turn, metals demand.

Economists at NAB pointed out the use of the term “moderately loose” to define monetary policy is the first since the aftermath of the GFC in 2009, and a step up from “prudent” monetary policy that has been in place for 14 years.

Copper traded above USD9,200/t as demand prospects improve. Iron ore inched higher. Inventories fell to 130mt last week, the lowest level since August.

Gold’s haven demand benefitted from tension in the Middle East. Strong central bank purchases of 60t in October have also helped to boost market sentiment.

China’s central bank resumed its gold buying in October, though the volume remains relatively small at 5t. India was the leading buyer with purchase of 27t, bringing its addition to 77t year-to-date.

 The latest US job data confirm an easing bias of the Fed, now the market focus will shift to US CPI inflation to reaffirm the rate cut in the upcoming meeting. A confirmation of rate cuts would see gold prices moving higher.

Oil prices rose amid ongoing uncertainty in the Middle East following the collapse of the Syrian government and expectations of further stimulus in China.

WTI rose 2.1% to USD68.6/bbl. Gold lifted 0.2% to USD2,662.8/oz.

The Chinese yuan appreciated, with USD/CNH falling from as high as 7.29 ahead of the announcement to as low as 7.26 and currently trades at 7.2674.

The AUD which had been on its knees at 0.6380, recovered to a high of 0.6471 and currently trades at US0.6443c.

Yields pushed higher and the US 10yr Treasury yield rose 4.4bps to 4.20% (high 4.20%; low 4.13%).

The curve is modestly steeper, with the 2yr yield up 2.1bps to 4.12%. US Fed pricing is little changed with around 21bps priced for December.

The deciding factor of course being CPI and PPI figures later this week. Also relevant for the Fed outlook was Trump’s weekend interview, where he was asked a question on whether he would try and replace Powell, his answer was “No, I don’t think so. I don’t see it. But, I don’t I think if I told him to, he would. But if I asked him to, he probably wouldn’t. But if I told him to, he would”.

On the calendar today:

-NAB Business Survey

-RBA Cash rate decision

-China Nov Trade Balance

-US Nov NFIB

-Beach Energy ((BPT)) investor briefing (site visit Waitsia)

-Myer ((MYR)) AGM

-Premier Investment ((PMV)) ex-div 70c (100%)

-Serko ((SKO)) investor briefing

FNArena’s four-weekly calendar: https://fnarena.com/index.php/financial-news/calendar/

Corporate news in Australia:

-Rupert Murdoch has failed in his attempt to change the terms of a family trust that would have consolidated his son Lachlan’s control over News Corp ((NWS))

-Future of Platinum Asset Management ((PTM)) uncertain now Regal Partners ((RPL)) is no longer interested in acquiring it

-Macquarie Asset Management ((MQG)) is acquiring a 40% stake in Diamond Infrastructure Solutions, a US Gulf Coast energy infrastructure company, for -$3.7bn

-CommBank ((CBA)) to replace Bendigo Bank ((BEN)) in providing Nauru’s banking services under a new Australia-Nauru treaty

-Newmont Corp ((NEM)) is selling its Cripple Creek & Victor mine in Colorado to SSR Mining ((SSR)) for up to $275m

-Sonic Healthcare ((SHL)) is acquiring Germany’s Laboratory Group Dr. Kramer & Colleagues for -EUR423m

-Superloop ((SLC)) is acquiring Uecomm from Optus for -$17.5m

The Australian share market over the past thirty days

For more detail go to FNArena’s Australian Broker Call Report, which is updated each morning, Mon-Fri.

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available on the FNArena website.  Click here. (Subscribers can access prices on the website.)

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