Originally published by Rivkin Securities
The US stock market climbed again overnight to close at record highs. The Dow Jones Industrial Average closed 0.47% higher at 18,956, just shy of 19,000, while the S&P 500 rose 0.75% to close the session at 2,198.18.
Our market isn’t experiencing such euphoria, nevertheless the S&P/ASX 200 continues to move higher since the US election. After days of increasing, Treasury bond yields took a breather overnight with the U.S. 10-Year currently trading at a yield of 2.31%. Australian bonds also stabilised with yields dropping a few basis points across all durations.
In the commodity space, the big mover overnight was Crude Oil which reacted to renewed optimism surrounding an OPEC deal to cut crude production. Furthermore, Putin was quoted saying that Russia is ready to freeze output at current levels. This caused WTI oil to jump almost 4% on the session, currently trading at $47.49 per barrel after having reached as high as $47.80. Oil was trading with a 43 handle just a week ago on scepticism that OPEC will be able to reach a deal to cut production. It is unlikely there will be a sustained move in either direction until the results of the OPEC meeting in Vienna on 30 November are known. Goldman Sachs (NYSE:GS) has actually changed its view such that it now believes a deal will be reached. Some reasons for its changed view include prices being at the low end of their recent trading range and OPEC production being closer to capacity. Notwithstanding this, it believes that shale production in the US will keep a cap on prices as a significant increase in shale oil production would follow from oil prices above $55 per barrel.
Gold prices held near their recent lows although they haven’t yet broken $1200 per oz on this move. The price is currently at around $1,214 per oz and the downward momentum appears to have been halted for the time being. Trading overnight stayed within a range between $1,210 and $1,217 with no major moves in either direction.
The probability of a December rate hike in the US is now virtually 100% certain according to market pricing as the strength in markets (bond market excepted) gives the Fed no excuse not to hike. This is putting significant pressure on the Australian dollar which now buys US$0.736, down from around US$0.770 earlier this month. Having said this, our currency bounced last night having reached a low of almost $0.731. This will come as a relief to the RBA which has been wishing for a lower currency without having to further cut interest rates.