ASX to rise, global markets pause

Market highlights

ASX futures up 30 points or 0.4% to 6876 near 5.20am AEDT

AUD -0.5% to 68.50 US cents
Sterling -1.6% to $US1.3123
On Wall St near 1.25pm: Dow +0.2% S&P 500 +0.1% Nasdaq +0.1%
In New York: BHP +0.2% Rio -0.1% Atlassian -1%
In Europe: Stoxx 50 -0.7%% FTSE +0.1% CAC -0.4% DAX -0.9%
Nikkei 225 futures flat
Spot gold flat at $US1476.69/oz at 1.26pm New York
Brent crude +1.3% to $US66.16 a barrel
US oil +1.3% to $US60.98 a barrel
Iron ore +US3¢ to $US94.07 a tonne
Dalian iron ore -0.6% to 637 yuan
LME aluminium -0.8% to $US1764 a tonne
LME copper flat at $US6200 a tonne
2-year yield: US 1.63% Australia 0.74%
5-year yield: US 1.71% Australia 0.77%
10-year yield: US 1.89% Australia 1.15% Germany -0.30%
10-year US/Australia yield gap near 5.30am AEDT: 74 basis points

From today’s Financial Review

Regulator drops bomb on NAB: ASIC alleges the bank has broken the law more than 10,000 times, leaving it exposed to a maximum theoretical penalty of almost $10 billion – news that also came on the eve of the bank’s annual general meeting.

Black mark for Goldman Sachs: Scratch below the surface of the multibillion-dollar Malaysian corruption scandal and there is cause for despair.

An iron ore reward for Treasury: A survey suggests the strength of the iron ore market will deliver unanticipated bounty to the government’s withered surplus.

Here’s how the bull market ends: If the experience of the 1990s is instructive, then all eyes must be on the Federal Reserve to figure out when this cycle has finally run its course.

United States

US stocks hovered around record levels on Tuesday after a four-day rally, as investor confidence in the US economy was reinforced with upbeat manufacturing and housing data.

Data from the Federal Reserve showed manufacturing output rose more than expected in November, as the end of a strike at General Motors plants boosted auto production.

The rebound of US manufacturing is “certainly” lifting investor sentiment, said Jeff Zipper, managing director of investments at US Bank Private Wealth Management in Florida.

“The path to least resistance seems to be up right now. Some of that predicated on data and (trade) tensions being less bad and that’s helpful to the market.”

Data also showed that US homebuilding last month rose more than expected, which boosted stocks of home improvement chains Home Depot and Lowe’s Cos.

While there is no major economic news due this week, a historic vote in the House of Representatives that is likely to result in the impeachment of President Donald Trump, poses another risk for investment decisions in the run-up to the 2020 election.

Europe

European shares bucked a four day winning streak on Tuesday, weighed by Unilever after a sales warning, while fears that Britain will take a hard line on the Brexit transition kept investors on edge.

The pan-European stocks index pulled back from record highs hit in the previous session, falling 0.7%.

Europe’s personal and household goods sector tumbled 2.6%, the most among regional subsectors, while also logging its worst day since early October.

Weighing on the sector was consumer goods giant Unilever , which slid 6.4% after it warned that 2019 sales would grow less than it had expected, citing tough trading conditions in West Africa and a slowdown in south Asia.

Domestically focused UK stocks also slipped from all-time highs after reports that Prime Minister Boris Johnson would use his control of parliament to rule out any extension of the Brexit transition beyond 2020.

British banks Royal Bank of Scotland, Barclays and Lloyds Banking Group dropped.

“Given the short amount of time that Johnson has to agree a deal, investors are probably worried that a no-deal Brexit is not off the table,” said Simona Gambarini, markets economist at Capital Economics in London.

London’s blue-chip FTSE 100 index held steady, aided by a weaker pound. Data showed British employers unexpectedly took on more staff in the three months before the country’s October 31 Brexit deadline, suggesting the labour market was retaining some of its strength.

Asia

Hong Kong stocks hit a five-week closing high on Tuesday, buoyed by optimism over the Sino-US interim trade deal and Wall Street’s rally to record highs.

Hong Kong’s benchmark Hang Seng Index closed up 1.2% at 27,843.71 points. The China Enterprises Index gained 1.7% to 10,964.99 points.

On the mainland, the blue-chip CSI300 index rose 1.4%, to 4041.80, the highest close since April 19, while the Shanghai Composite Index rallied 1.3% to 3022.42.

In a fresh sign that Beijing will continue to support the economy with fiscal stimulus, the state planner said on Tuesday it approved eight fixed-asset investment projects in November worth a combined 7.1 billion yuan.

So far this year, the Shanghai stock index is up 19.67%, while China’s H-share index is up 6.5%. Shanghai stocks have risen 3.91% this month.

In Tokyo, the Nikkei index settled 0.5% higher at 24,066.12, with the healthcare and industrials sectors leading the gains. Earlier in the session, the benchmark index reached its highest level since October 4, 2018. It is up 19.7% so far this year.

Currencies

Britain’s pound tumbled, erasing its post-election gains, after news that Prime Minister Boris Johnson planned to take a hard line in Brexit talks with the European Union dashed hopes of an end to Brexit uncertainty.

The British currency was on course for its biggest one-day loss versus the US dollar since November 2018.

In his boldest move since winning a large majority in last Thursday’s election, Johnson will use the prospect of a Brexit cliff-edge at the end of 2020 to demand the EU give him a comprehensive free trade deal in less than 11 months.

The reaction in markets, which had hoped that a resounding election win for Johnson’s Conservative Party would end near-term Brexit uncertainty, was swift.

Sterling slumped as much as 1.5% to $US1.3127, giving up all of the gains made on Thursday and Friday after it became clear that the Conservative Party was heading for a big win.

Against the euro, the pound tumbled 1.6% to 84.99 pence , having skyrocketed to a 3-1/2-year high of 82.78 pence last week.

“We have been warning against getting too optimistic on the pound in the run-up to the UK election and now that the contest is over we are turning negative on sterling again,” said George Saravelos, global head of FX research at Deutsche Bank.

He said that while a disorderly Brexit was not “inevitable,” it raised the bar for compromise and sent a negative message to business about the economy.

Commodities

RBA should cheer on commodities rally: With the RBA’s gaze fixed on a sluggish domestic economy, rallying prices of copper and oil show traders are betting on stronger global growth in 2020.

Three-month copper on the London Metal Exchange (LME) climbed to an intraday high of $US6223 a tonne, the strongest since May 8, before retreating to $US6200 in final open-outcry trading, up $US1 from Monday’s close.

The Baltic Exchange’s main sea freight index fell for a tenth-straight session on Tuesday, as capesize vessel rates hovered near a six-month low.

The Baltic index, which tracks rates for capesize, panamax and supramax vessels that ferry dry bulk commodities, dropped 34 points, or 2.6%, to 1,281, its lowest since November 21.

Australian sharemarket

Australian investors paused after pushing shares to steep gains early in the week, although miners were in demand as the outlook for the global economy brightened.

The S&P/ASX 200 index ended 2 points lower at 6847.3.

The market is almost back at its closing record high of 6863.99 hit on November 28, after a massive rally on Monday after the Conservative Party’s decisive win in the UK election and a phase 1 trade deal between the US and China.