The buoyant mid-year economic update and solid November jobs data have added to the headache about the strength of the Aussie dollar at the Reserve Bank as we head towards the end of the year and the long summer break.
The obvious improvement in the economic outlook heading into 2021 for Australia saw the currency roar over 76 US cents for the first time in two and a half years to trade around 76.40 US cents in early Asian dealings on Friday morning.
That takes the gain since the start of November to 9% when the currency was around 70 US cents on November 2, the day before the RBA cut rates to just 0.10% and started a $100 billion bond-buying campaign targeting the 10% bond yield to try and keep a lid on the rising value of the currency.
Friday morning’s levels were up more than half a cent from the close in Australia late Thursday at 75.87 US cents and came as the US dollar was again sold off by traders worried about higher inflation, interest rates flowing from an about to be finalised new multi-billion dollar stimulus package.
The timing of that package’s finalisation has now slipped into the weekend instead of being settled on Friday, so Wall Street slowed and the futures trading for the ASX 200 saw a dip by about 3 points just before the 8 am close instead of a five-point gain before 7 am Friday.
That points to a weakish start locally this morning, but rises in gold, oil, iron ore, and copper on Thursday should offset that, even marginally for a while.
The ASX’s 1.1% jump on Thursday was one of the largest for a while and reflected the rebound in optimism after the good update to the budget and the November jobs data.
But the situation in the US will be the major lead for markets with the timing and size of the new stimulus package the big questions for the markets. Once they are resolved and the deal done and passed before the end of the year, then investors will feel more confident about 2021.
That package – which could be more than $US800 billion – is needed if the 1.1% fall in US retail sales in November is any guide, especially coming on top of the revised 0.1% slip in October (after the original call of a rise of 0.3%).
As well US first time jobless claims rose again last week – to 885,000 from the 862,000 the week before (which was also higher than the previous week). Economists had been forecasting a rise of around 800,000, so they were horribly short of the mark.
Wall Street saw smallish gains, especially for mega techs and related lockdown safe stocks because of the rising toll of US infections and deaths.
The gains for the technology shares pushed the S&P 500 and the Nasdaq to record highs on Thursday because of the last resort belief the new stimulus bill will do the trick.
It won’t – only controlling the virus will but it is out of control across the US which has so far registered over 17 million COVID-19 cases and nearly 309,000 deaths — by far the most in the world.
A further 3,580 deaths were reported on Thursday and the death toll by Christmas Day – a week’s time, will top 330,000 or 0.1% of the entire American population.
The question for Aussie investors Friday will be whether the weakish guide from the US is offset by the bullish news on rising commodity prices.
Iron ore prices rose with the price of the key 62% Fe fines rising 1.3% or $US2.04 a tonne to $US158.49 a tonne delivered to northern China. The gain followed a solid rise in Chinese iron ore futures.
Gold prices rose but ended just shy of the $US1,900 an ounce level (it did rise above $US1,901 an ounce during trading) and oil prices were also firmer with West Texas Intermediate, the US marker crude, at levels last seen in February around or just over $US48 a barrel. Brent futures topped the $US51.50 level a barrel.
Copper prices again rose – up 1.3% to just over $US3.60 a pound on Comex in New York to continue its solid rebound of the past couple of months.
The Dow was up 0.498% at the close, at 30,303.37; the S&P 500 closed up 0.48%, at 3,722.489. The Nasdaq ended up 0.84%, at 12,764.75.
The real weakness in the US economy was underlined (but ignored by many in the markets) this week by the Federal Reserve’s renewed support for the economy by keeping interest rates at near-zero levels at this week’s final meeting for the year which also vowed to keep pushing cash into financial markets over the long term through $US120 billion of bond purchases each month.
While share markets have thrived on the accommodative monetary policy stance in the US (and elsewhere, such as Australia) through the pandemic, economies have been on life support provided by the stimulus and support spending by governments and central banks.
