ASX poised to plunge to start 2020

Australian shares are set to start the year on the backfoot, extending losses from a shortened New Year’s Eve session.

ASX futures were down 139 points or 2.1% to 6602, based on futures trading in New York on December 31.

On Tuesday, the  S&P/ASX 200 shed 1.8 per cent, or 121 points, to close the decade at 6684 points.

Market watchers pointed to a surge in strength in the Australian dollar for the stock market rethink; the local currency advanced as its US counterpart retreated.

The Aussie has risen 3% since December 10; it was 0.1% lower at US70.16¢ near 5am AEDT.

Trading volume is expected to be thin until next week with many market participants still on holiday both here and overseas.

The currency and bond markets were trading overnight, though there was little movement in prices.

Today’s agenda

Local: CoreLogic house prices December

Overseas data: China Caixin manufacturing PMI December; US initial jobless claims December, Markit manufacturing PMI December

Market highlights

Most major global markets were closed on January 1st

ASX futures down 139 points or 2.1% to 6602

  • AUD -0.1% to 70.16 US cents at 1pm New York
  • S&P 500 futures +0.2% on Dec 31
  • Nikkei 225 futures -0.8% on Dec 31
  • Spot gold flat at $US1517.29/oz near 1pm New York
  • Brent crude -1% to $US66.00 a barrel on Dec 31
  • US oil -1% to $US61.06 a barrel on Dec 31
  • Iron ore +1.2% to $US92.13 a tonne on Dec 31
  • Dalian iron ore +0.5% to 648.5 yuan on Dec 31
  • LME aluminium -0.9% to $US1810 a tonne on Dec 31
  • LME copper -0.7% to $US6175 a tonne on Dec 31
  • 2-year yield: US 1.57% Australia 0.91%
  • 5-year yield: US 1.69% Australia 0.99%
  • 10-year yield: US 1.92% Australia 1.37% Germany -0.19%
  • 10-year US/Australia yield gap near 5am AEDT: 55 basis points

From today’s Financial Review

Suburbs tipped to outperform in 2020: Which suburbs are set to beat the average property prices this year?

Melbourne set to overtake Sydney as largest city by 2026: Melbourne is on track to become the nation’s most populous city in six years, increasing its political, financial and corporate power.

Finding Mike Henry: From Canada to the Big Australian: As Mike Henry takes the reins at Australia’s biggest miner, we travel to the town in British Columbia where he grew up.

Chanticleer: Why culture looms as key challenge for Mike Henry

United States

S&P 500 edges higher to close out banner year: A rally in the final hour of the final trading session of the year helped the S&P 500 end 2019 on a positive note.

Europe

European shares ended the final trading day of the decade with a whimper on Tuesday as investors locked in gains after a record rally fuelled by optimism around trade and easing fears of a global recession.

In a shortened session ahead of the New Year’s Eve celebrations, the pan-European STOXX 600 index closed down 0.1%. For the year, the STOXX 600 rose about 23%.

French, British and Spanish stocks lost between 0.1% and 0.7%, while Frankfurt and Milan bourses were shut for the year-end holidays.

Airbus has become the world’s largest planemaker for the first time since 2011 after delivering a forecast-beating 863 aircraft in 2019, airport and tracking sources said.

Lloyds Banking Group suffered an outage on Wednesday that left customers of its Lloyds, Halifax and Bank of Scotland operations unable to access accounts online for several hours.

Disruption to online services is a periodic problem for Britain’s banks, and last month regulators told lenders they needed to resolve problems more swiftly.

Asia

China’s blue-chip CSI300 Index ended the last session of 2019 at an eight-month closing high of 4096.58 points, up 36.1% from the start of the year. The Shanghai Composite Index gained 22.3% this year, closing the day at 3050.12 points.

Indonesia said on Wednesday it rejected China’s claims over a disputed part of the South China Sea as “having no legal basis”, after two days earlier protesting to Beijing over the presence of a Chinese coastguard vessel in its territorial waters.

Ghosn not the only reason to watch Japanese markets: The stories surrounding Carlos Ghosn’s flight from Japan are incredible, but its more solid fundamentals that have investors watching the markets.

Currencies

The US dollar index recorded its smallest-ever annual move in 2019, up just 0.24% for the year after a drop in December reversed early gains as trade hopes and investor confidence diminished demand for the safe-haven asset.

The pound, the euro and a clutch of trade-sensitive currencies rallied as the dollar slid to a six-month low on Tuesday as investor optimism about global growth prospects and the Phase 1 US-China trade deal spurred a risk-on move.

“Everybody has been wanting to short the [US] dollar. It has been the most frustrating trade of the year. I think for the most part, there’s not a lot of resistance going back into that trade. If we look into the top 2020 calls for FX, it’s going to be short the dollar,” said Marvin Loh, senior global macro strategist at State Street Global Markets.

RBA’s 2020 vision blurred by domestic challenges: Philip Lowe will be hoping his call for a “gentle turning point” for a sluggish economy proves correct, thereby avoiding the need for unconventional policy.

PBOC stresses policy flexibility as economic pressures persist: China’s central bank said it would keep monetary policy flexible and work to lower funding costs for businesses as the economy still faces strong headwinds.

Commodities

China’s iron ore futures were the best performing commodity in 2019, more than doubling in value while natural gas ranked as the biggest loser, dropping by more than a quarter.

Crude oil, Malaysian palm oil, precious metals, nickel and arabica coffee were among other gainers.

Supply disruptions played a role in fuelling gains, ranging from a dam collapse at Vale’s iron ore mine in Brazil to crude oil export cuts by the Organisation of the Petroleum Exporting Countries and lower palm oil production in Southeast Asia.

The Dalian Commodity Exchange’s most-traded iron ore contract rallied more than 140%, hitting a record in July before retreating as supplies increased.

Prices are expected to drop in 2020 as Vale’s production is likely to recover and some analysts expect Chinese steel output growth to moderate.

A record volume of new natural gas supply entered the market in 2019 just as the global economy slowed, curbing demand for the cleaner but comparatively more expensive fuel for power generation.

Gold prices are set to post their best year since 2010, having gained almost 20%, fuelled by worries about global economic health and loose central bank monetary policy.

For Malaysian palm oil, which is up more than 40% in 2019, there are concerns about lower production early next year as dry weather curbs yields across Southeast Asia.

A ban on nickel ore exports by top miner Indonesia lifted London prices more than 30% this year. But Sino-US trade relations curtailed copper, widely used in power and construction, which is on course to gain about 4% in 2019.

Chicago soybeans and corn futures are poised to end 2019 little changed, with the focus on Brazilian supplies entering the market early next year and slowing demand in China in the aftermath of African swine fever.

Wheat gained around 10% in 2019, a third straight year of annual gains, on tightening supplies in the Southern Hemisphere, especially Australia which is facing a third year of drought.

Arabica coffee rallied around 30%, Tokyo rubber added almost a fifth and New York sugar is up more than 10%.

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