ASX to rally at open

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ASX to rally at open

Australian shares are set to open higher, paced by strong gains on Wall Street. ASX futures up 46 points at 7.45am AEDT. Spot iron ore drops as China steel prices enter bear market.

China’s steel prices tumbled more than 5 per cent to a five-month low on Monday as persistent worries over weaker demand pushed the sector into a bear market, sparking a selloff in raw materials iron ore and coking coal.

The most actively traded rebar contract on the Shanghai Futures Exchange fell as far as 3496 yuan ($US504) a tonne, its lowest since June 26 and losing 21 per cent since hitting a seven-year peak of 4418 yuan in August.

The construction steel product closed down 3.8 per cent at 3553 yuan.

With steel prices coming from a high point, “the panic selling is unavoidable”, Richard Lu, analyst at CRU consultancy in Beijing, told Reuters.

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Wall Street however powered higher to start the week buoyed by enthusiastic buying by US consumers. Cyber Monday is expected to rake in a record $US7.8 billion in sales, according to Adobe Analytics, as shoppers who missed out on deals on Black Friday visit online sites for deals.

Today’s Agenda

Local data: New Zealand trade balance October

Overseas data: China industrial profits October; US  FHFA house prices September; S&P/CS house prices September; CB consumer confidence November; Federal Reserve members Raphael Bostic, Charles Evans and Esther George speak on panel.

Market Highlights

SPI futures up 46 points 0.8% to 5724 at 7.45am AEDT

AUD -0.1% to 72.30 US cents

On Wall St at 3.48pm New York: Dow +1.4%  S&P 500 +1.5% Nasdaq +2%

In New York, BHP -0.6%  Rio -1% Atlassian +3.8%

In Europe: Stoxx 50 +1.1% FTSE +1.2% CAC +1% DAX +1.5%

Spot gold flat at $US1222.80 an ounce at 2.09pm New York time

Brent crude +3.9% to $US61.10 a barrel

US oil +3.1% to $U51.96 a barrel

Iron ore -8.4% to $US64.25 a tonne

LME aluminium +0.1 per cent at $US1951.50 a tonne

LME copper -0.3 per cent at $US6189 a tonne

2-year yield: US 2.83% Australia 2.02%

5-year yield: US 2.90% Australia 2.22%

10-year yield: US 3.07% Australia 2.63% Germany 0.36%

US-Australia 10-year yield gap as of 7.14am AEDT: 44 basis points

From Today’s Financial Review

Chanticleer: Henry goes to heart of Hayne’s problem: National Australia Bank chairman Ken Henry, and to a lesser extend his chief executive Andrew Thorburn, don’t appear to have got the memo about how bank executives should act at the royal commission.

Average tax rate to hit 20-year high: The average tax rate paid by workers will continue to rise over coming years and hit a two-decade high of 20 per cent, pressuring both major political parties to dangle larger personal income tax cuts at next year’s election.

East coast gas prices remain stubbornly high: East coast manufacturers are voicing frustration as domestic gas prices fail to follow international LNG prices lower, leaving them paying up to 25 per cent more for spot gas than equivalent export “netbacks” despite the dive in crude oil prices.

United States

Holden disease spreads to North America: General Motors is cutting more than 14,000 workers as it shutters five North American factories to counter a slump in demand for traditional sedans and amid signs of a slowing economy.

US stocks rebounded on Monday after two bruising weeks, as investors picked up beaten-down energy and financial stocks, while retailers gained on hopes of robust sales on the largest online shopping day of the year.

Cyber Monday is expected to rake in a record $US7.8 billion in sales, according to Adobe Analytics, as shoppers flock to online sites for deals.

E-commerce giant Amazon jumped 3.4 per cent, providing the biggest boost to the S&P 500 and the Nasdaq. The consumer discretionary index rose 1.8 per cent.

Campbell Soup and Third Point settled their proxy contest by adding two of the hedge fund’s nominees to the US food company’s board and giving the activist investor a say in selecting Campbell’s next CEO, the company said.

Europe

The British parliament will vote on whether to support Prime Minister Theresa May’s Brexit deal on December 11, according to a copy of the timetable for the debate posted on Twitter by a Business Insider reporter.

European shares closed higher on Monday after new-found optimism on Italy’s budget tug-of-war with Brussels lifted shares in Milan while speculation about further mergers and acquisitions in telecoms boosted stocks in the sector.

The pan-European STOXX 600 climbed 1.2 per cent and Italy’s FTSE MIB led the way with a 2.8 per cent jump.

Italy’s banks index jumped 4.8 per cent, its strongest day since June, while the sector in the euro zone gained 2.9 per cent.

A drop in Italian bond yields to two-month lows, due to hopes the government will agree to curb spending to avoid a clash with Brussels, drove the relief rally in lenders that have large sovereign bond portfolios.

Italy’s governing coalition may reduce next year’s budget deficit target to as low as 2 per cent of gross domestic product to avoid disciplinary action from Brussels, two government sources said on Monday.

The move set off a rally in financial markets but it was unclear if the downward revision would be enough to satisfy the European Commission.

The goal in the draft budget is now 2.4 per cent of GDP, much higher than the 0.8 per cent set by the previous government, prompting European partners to first threaten a formal rebuke on October 23.

The leaders of both parties in the governing coalition, which is composed of the right-wing League and the anti-establishment 5-Star Movement, signalled they are open to lowering the deficit goal ahead of a meeting to discuss the move scheduled for Monday evening.

Asia

Stocks in Hong Kong gained on Monday, shrugging off losses in Mainland China, as investors saw signs of the US Federal Reserve slowing its pace of hiking interest rates. The expectation lifted sectors sensitive to interest rates, such as financials and property. 

The Hang Seng index ended 1.7 per cent higher at 26,376.18, and the Hang Seng China Enterprises index rose 1.3 per cent to 10,521.53. 

Currencies

The euro weakened against the greenback on Monday, giving up earlier gains, after European Central Bank President Mario Draghi acknowledged slowing growth in the region.

The euro zone has lost some growth momentum but this was mostly normal and not enough to derail plans by the bank to dial back stimulus further, Draghi and two of his top lieutenants said on Monday. The comments came after data showed that German business morale fell by more than expected in November.

Munich-based Ifo said sentiment worsened for the third month in a row.

“Weaker-than-forecast Ifo business sentiment data, in addition to Draghi’s acknowledgement of a recent softening in euro zone data unnerved euro traders, sending the euro lower,” said Fiona Cincotta, senior market analyst at City Index.

Bitcoin plunged more than 12 per cent, extending falls in recent weeks in a broad-based selloff in digital currencies as sentiment sours.

Bitcoin fell to as low as $US3519.94 on the Bitstamp platform, after earlier falling to a 14-month trough of $US3462,57, and was last down 12.6 per cent. It has lost 74 per cent of its value so far this year, after hitting nearly $US20,000 in December last year.

Other digital currencies also fell sharply, with Ethereum’s ether down 7 per cent at $US106.69 and Ripple’s XRP falling 5.6 per cent to 34 US cents.

Cryptocurrency market capitalisation plummeted to $US122.3 billion on Monday, down 85 percent from its peak of nearly $US800 billion hit in early January this year.

Commodities

China’s steel slides into bear market: China’s steel prices tumbled more than 5 per cent to a five-month low on Monday as persistent worries over weaker demand.

Zinc prices fell for a second session on Monday as expectations of weaker demand from Chinese steel mills overpowered signs that the market is short of metal. Most other industrial metals also fell.

LME copper ended down 0.3 per cent at $US6189 a tonne, aluminium finished up 0.1 per cent at $US1951.50, nickel lost 0.4 per cent to $US10,875, lead slipped 1.3 per cent to $US1943 and tin closed up 0.5 per cent at $US18,900.

Commodity bull Goldman Sachs is undaunted by the sell-off in raw materials and is forecasting returns of about 17 per cent in the coming months, describing the current situation as unsustainable and touting this week’s G20 meeting in Buenos Aires as a potential turning point.

“Given the size of dislocations in commodity pricing relative to fundamentals — with oil now having joined metals in pricing below cost support – we believe commodities offer an extremely attractive entry point for longs in oil, gold and base,” analysts including Jeffrey Currie said in a report. The note listed its top 10 trade ideas for 2019, including a rebound in Brent as OPEC cuts supply.

Australian Sharemarket

The major mining and energy stocks ended two positive days of trading for the local sharemarket on Monday as iron ore and oil prices tumbled further.  

The S&P/ASX 200 Index closed 44.6 points, or 0.8 per cent, lower at 5671.6 while the broader All Ordinaries Index slumped 43.1 points, or 0.7 per cent, to 5750.3.

Black Friday turned into a fire sale for oil prices,” said OANDA head of trading Asia Stephen Innes. “It was the enormous drop in oil prices that triggered calamitous price action across forex, commodity and bond markets.”

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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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