Here’s Capital Economics’ view on the China data: “We think that industrial production weakened further in the first two months of 2019, but this may not be reflected in the headline data which suffer from many of the same flaws as the official GDP figures.
“Headline investment growth may have edged up, though, as infrastructure investment is likely to have risen in recent weeks on the back of increased fiscal support.
“Finally, signs that car sales weakened further in January and February hint at some further downside to retail sales growth early this year.”
SocGen’s Kit Juckes had this comment in the wake of the Australian government 10-year yield falling below 2 per cent: “I can’t see any sense in shorting the Australian dollar at these levels – it may stay cheap for a really long time but the downside should be limited.
“However, the economy is doing badly, the monetary policy outlook has changed and the 10-year bond yield is back under 2%. There’s a plausible scenario where real estate provides the foundations for recession.”
Today’s Agenda
Local data: Consumer inflation expectations March
Overseas data: China retail sales February, Industrial production February, Fixed assets investments February; US import price index February, New home sales January
Market Highlights
SPI futures up 20 points or 0.3% to 6182 about 7.30am AEDT
AUD +0.2% to 70.95 US cents
On Wall St: Dow +0.6% S&P 500 +0.7% Nasdaq +0.7%
In New York, BHP +1% Rio +1.3% Atlassian -2.1%
In Europe: Stoxx 50 +0.6% FTSE +0.1% CAC +0.7% DAX +0.4%
Spot gold -0.6% to $US1308.90 an ounce at 1.43pm New York time
Brent crude +1.2% to $US67.47 a barrel
US oil +2.1% to $US58.04 a barrel
Iron ore -0.6% to $US84.78 a tonne
Dalian iron ore +1% to 616 yuan
LME aluminium +1.8% to $US1906 a tonne
LME copper bid unchanged at $US6472 a tonne
2-year yield: US 2.46% Australia 1.59%
5-year yield: US 2.43% Australia 1.60%
10-year yield: US 2.62% Australia 1.96% Germany 0.06%
US-Australia 10-year yield gap as of 7.32am AEDT: 66 basis points
From Today’s Financial Review
How mortgage brokers defeated Hayne: The Morrison government’s stunning backflip on mortgage broker pay was engineered by the Prime Minister’s celebrity friend Mark Bouris and aided by his former flatmate Stuart Robert.
Chanticleer: APRA finally talks tough: Long-standing observers of the regulation of superannuation could be forgiven for being slightly cynical about Helen Rowell’s speech on Wednesday putting trustees of poor-performing super funds on notice.
Auditors to examine $423m Paladin contracts: Home Affairs has asked Ernst & Young to investigate how the little-known Paladin Group came to win $423 million in refugee service contracts on Manus Island.
United States
US data signals economy’s resilience: New orders for key US-made capital goods rose in January and shipments increased, pointing to solid business spending on equipment.
US stocks rose on Wednesday, led by gains in healthcare shares, and Boeing shares edged upward even as the United States grounded the company’s 737 MAX jets after a fatal crash in Ethiopia.
Producer prices barely rose in February, resulting in the smallest annual increase in more than 1-1/2 years, yet another indication of benign inflation.
“It’s a risk-on trade and a lot of it has to do with the continued muted inflation that we’re seeing from yesterday’s CPI and today’s PPI. That gives investors confidence that the Fed is going to remain dovish,” said Ryan Nauman, market strategist at Informa Financial Intelligence in Zephyr Cove, Nevada.
Brookfield Asset Management said it will buy most of Oaktree Capital Group in a roughly $US4.8 billion deal, creating an alternative-asset manager that would rival industry leader Blackstone Group in size.
Europe
British MPs set to reject no-deal Brexit: The crucial vote on Thursday morning (AEDT) will put the onus on PM Theresa May or her Parliament to urgently conjure a new way forward.
European shares jumped on Wednesday as investors bet British lawmakers would vote to reject a disorderly no-deal Brexit, but underwhelming results from Inditex and Adidas kept gains limited.
The pan-European STOXX 600 index climbed to close up 0.6 per cent while London’s FTSE 100 barely managed a 0.1 per cent gain as sterling extended gains.
Lawmakers resoundingly voted against Prime Minister Theresa May’s amended Brexit deal late on Tuesday, forcing parliament to decide whether to back a no-deal Brexit or seek a last-minute delay to the process.
“I think the market can see that today parliament is going to vote against no deal,” said Duncan Weldon, cross asset allocation strategist at Legal & General Investment.
But investors were far from exuberant.
“I think a lot of people who don’t have to be invested in the UK are sitting this one out for the moment”, he added.
European stocks were boosted by a 1 per cent jump in oil prices which drove the STOXX 600 oil & gas index up 1.6 per cent to its highest level in four months.
Results from several companies disappointed, however.
Zara owner Inditex slid 4.5 per cent after it published annual earnings slightly below analysts’ expectations and announced more store closures than expected.
Germany’s Adidas lost 2.4 per cent after announcing supply chain issues would hit its sales growth in the first half of 2019, particularly in North America.
Asia
Hong Kong stocks dropped on Wednesday, as investors turned cautious ahead of yet another make-or-break parliamentary vote on Brexit while awaiting more news on the progress of Sino-U.S. trade negotiations. The Hang Seng index fell 0.4 per cent, to 28,807.45, while the China Enterprises Index lost 0.5 per cent, to 11,405.82 points.
Japan’s Nikkei ended lower on Wednesday as weak machinery orders dragged down shares of machinery makers and exporters, and investors worried about Britain’s exit from the European Union took profits.
Financial stocks, which benefit from higher yields, also underperformed as US yields tumbled under pressure from weak inflation data, supporting expectations that the Federal Reserve will hold interest rates steady this year.
The Nikkei share average ended 1.0 per cent lower to 21,290.24 points, after surging 1.8 per cent the previous day.
Japanese machinery orders fell in January at the fastest pace in four months as the US-China tariff war hit global trade and dented demand from the country’s auto and telecommunications equipment sectors.
Among chip equipment makers, Advantest Corp shed 2.3 per cent, while Tokyo Electron lost 1.3 per cent. TDK Corp fell 3.5 per cent and Hitachi Ltd dropped 2.9 per cent.
“A bad machinery figure was somewhat expected,” said Yoshinori Shigemi, global market strategist at JPMorgan Asset Management.
Currencies
Sterling on Wednesday was headed for its biggest daily rise in 2019 as investors bet that British lawmakers would resoundingly vote against leaving the European Union in 16 days’ time without a transition agreement.
Britain’s parliament was set to vote at 1900 GMT against the risk of a “no-deal” Brexit, 24 hours after a second defeat for Prime Minister Theresa May’s divorce treaty left Britain heading into the unknown.
That would lead to a vote on Thursday on delaying Britain’s EU departure, a move that could bolster the pound because investors say it would increase May’s chances of securing a deal or even lead to Brexit being called off altogether if a second referendum is held.
The pound has swung wildly in the last 48 hours between $US1.30 and $US1.33 and the currency has at junctures been at its most volatile since the June 2016 Brexit referendum.
“The potential delay of Brexit is what is helping to hold up the pound, but by the same token, the uncertainty is limiting its upside potential,” said Fawad Razaqzada, a market analyst at Forex.com.
Sterling’s gains were spurred earlier by a BBC media report that Attorney General Geoffrey Cox had further legal advice which might help May win over lawmakers to her Brexit deal.
Market reaction to British finance minister Philip Hammond’s Spring Statement was broadly muted despite a downgrade to the government’s UK economic growth forecast for this year to 1.2 per cent, from an autumn forecast of 1.6 per cent.
Commodities
Zinc prices held close to an eight-month high on Wednesday as sinking stocks of the metal on the London Metal Exchange market fuelled supply concerns even as inventories grew elsewhere.
Inventories of zinc in warehouses certified by the LME touched 58,950 tonnes, their lowest since October 2007.
This boosted the premium for cash zinc over the three-month LME contract to $US52 per tonne on Tuesday, its highest since January 8.
“Tightness on the LME seems to be playing into higher prices, even though there is a reasonable amount of stock in China which suggests that the global market is not as tight as the LME is,” said Capital Economics analyst Ross Strachan.
Benchmark zinc closed up 0.4 per cent at $US2848 a tonne after earlier reaching its highest since July at $US2848.50.
The metal is the second best performing base metal this year, up 15 per cent after shedding 26 per cent in 2018.
Aluminium ended up 1.8 per cent at $US1906 a tonne after Norway’s Norsk Hydro said production at its Neuss plant in Germany would likely fall by 10,000-20,000 tonnes due to an accident.
Australian Sharemarket
Sigma Healthcare’s decision to rebuff Priceline-owner Australian Pharmaceutical Industries’s $730 million bid was behind the biggest drop on the S&P/ASX 200 Index on Wednesday, the benchmark’s fourth-straight day of losses.
The ASX 200 closed 14 points, or 0.2 per cent, lower to 6161.2 points, extending a losing streak that began on Friday in response to evidence of slowing global growth.
Artificial intelligence provider Appen countered another day of losses with its 5.1 per cent rally to $23.27. Appen conducted a $285 million capital raising to fund its purchase of the machine-learning software business Figure Eight, causing the stock to fall more than 9 per cent in Tuesday’s session.
Sigma fell 12.3 per cent to 53.5¢. The collapse of takeover talks also pushed API shares 3.6 per cent lower to $1.35.
Street Talk
CHAMP builds case for engineering play
Odyssey Private Equity climbs aboard Sushi Sushi train
Partners Group targets up to $500m for debt fund IPO
with Reuters, Bloomberg, AAP
Comments? Questions? Let us know what you think of Before the Bell: timothy.moore@fairfaxmedia.com.au
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