Aussie dollar goes down under as global slowdown forces RBA shift

Oil slips below $62 on rise in US inventories

LONDON, Feb 6, (Agencies): The Australian dollar nosedived on Wednesday after its central bank opened the door to a possible rate cut, in yet another indication the global economic slowdown is persuading policymakers to go easy on rate hikes.

World stocks too stalled just off two-month highs, undermined by the growth worries as well as US President Donald Trump’s combative State of the Union address in which he unveiled no new policy initiatives. European shares traded marginally in the black and equity futures signalled a flat to weaker open on Wall Street.

Australia’s central bank is only the latest to signal policy easing in the face of economic headwinds – the US Federal Reserve has all but abandoned plans for further rate hikes, while the European Central Bank also sounded less certain that it will start tightening policy later this year.

The U-turn pushed the Australian dollar 1.5 percent lower, putting it on track for its biggest daily drop in a year. Australian short-dated bond yields were set for their biggest one-day drop in more than two years, down 10 basis points on the day.

Investors have pushed back expectations that the European Central Bank will hike rates this year, a view reinforced after data showed German industrial orders fell on weak foreign demand in December.

Investors will also be looking to the European Commission’s winter macroeconomic forecasts, due to be published Wednesday or Thursday. Large downward revisions to growth and inflation are likely, many analysts predict.

Concerns for world growth fanned fears for global energy demand, hitting crude prices. Brent futures were trading around $61.59 a barrel.

On the Brexit front, sterling looked fragile at around $1.2951 after losing nearly 0.7 percent on Tuesday when weak service sector data underscored damage to the economy from Brexit uncertainty.

US

US stocks dipped on Wednesday as disappointing forecasts from videogame makers pulled the communications sector lower, but a boost from technology companies kept the indexes near twomonth highs.

Electronic Arts Inc slid 14.4 percent after cutting its yearly revenue outlook, while Take-Two Interactive Software Inc fell 12.8 percent after its revenue forecast disappointed investors.

Activision Blizzard Inc also fell 8.7 percent.

Leading the gains on the technology sector was Skyworks Solutions Inc, up 14.2 percent after the analog semiconductor maker announced a $2 billion buyback. The gains also pushed the Philadelphia chip index up 3.11 percent.

“Investors are focusing on earnings and the next big thing, that is trade,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.

“There is no enthusiasm following last night’s State of the Union message and the reason for that is investors are worried about political fighting and that is concerning.”

Optimism on a possible US-China trade truce and the Federal Reserve’s signal of ending its monetary policy tightening has now put the S&P 500 about 7 percent away from its record closing high in September.

Earnings have also been contributing to market optimism. About 71 percent of more than half of the S&P 500 companies that have reported earnings have topped profit expectations, according to IBES data from Refinitiv.

At 9:56 a.m. ET the Dow Jones Industrial Average was down 37.22 points, or 0.15 percent, at 25,374.30, the S&P 500 was down 2.80 points, or 0.10 percent, at 2,734.90 and the Nasdaq Composite was down 2.07 points, or 0.03 percent, at 7,400.02.

The communication services sector fell 0.62 percent, the most among the 10 major S&P sectors trading lower.

Capri Holdings Ltd, formerly Michael Kors, jumped 11.5 percent after posting better-than-expected holiday-quarter profit and raising its full-year revenue forecast.

Also on deck is Fed Chairman Jerome Powell’s address at 7:00 p.m. ET (0000 GMT) in Virginia.

Declining issues outnumbered advancers for a 1.37-to-1 ratio on the NYSE. Advancing issues outnumbered decliners for a 1.06-to-1 ratio on the Nasdaq.

The S&P index recorded five new 52week highs and two new lows, while the Nasdaq recorded 17 new highs and eight new lows.

UK

UK shares dipped on Wednesday as US President Donald Trump offered little sign of progress in trade talks with China in his State of the Union address, while Ocado slumped after a fire at its flagship distribution centre.

The FTSE 100 was down 0.3 percent, ending a six-day winning streak, and the FTSE 250 was 0.2 percent higher by 0937 GMT.

BP, which had led the main index higher with a more than 5 percent gain on Tuesday after strong results, dipped along with other oil stocks as crude prices fell. A stronger pound and Clydesdale Bank owner CYBG’s upbeat quarterly report boosted the mid-cap index.

Investors also sold off UK financial stocks after France’s largest listed bank, BNP Paribas, cut its 2020 targets. GlaxoSmithKline was 1.6 percent lower ahead of its full-year results later on Wednesday.

Midcap CYBG, a newly emerged challenger to Britain’s big retail banks, surged 14 percent - its best intra-day gain ever - after reporting a rise in first quarter lending.

Irish building materials group CRH gained 3.3 percent and outperformed the main index after a Reuters report that activist investor Cevian Capital had built a stake in the group.

Europe

European shares were lower on Wednesday as weak results from banks, including BNP Paribas , and carmaker Daimler brought an end to the market’s six-day rally.

Europe’s STOXX 600 fell 0.2 percent by 0909 GMT, with the index stalled near the more-than-two-month highs reached on Tuesday. Germany’s tradesensitive DAX was down 0.5 percent and France’s CAC 40 fell 0.4 percent.

Daimler fell to the bottom of the DAX, down 2.3 percent, after the German carmaker said fourth-quarter operating profit fell 22 percent, as trade war and ballooning costs for developing electric and self-driving cars hit profits at Mercedes-Benz autos.

Auto makers and suppliers were down 0.8 percent.

Banks were the biggest drag on the STOXX 600, with BNP Paribas down 2.2 percent. France’s largest-listed lender lowered its profit and revenue growth targets for 2020 after a tough fourth quarter.

Credit Suisse was down 0.7 percent after the Swiss bank said it expected a higher tax rate for 2018 than previously forecast.

Nordea fell 1.4 percent after the Nordic region’s biggest bank reported a 6 percent drop in fourth-quarter revenue, dashing analysts’ hopes of an improvement and overshadowing its cost cutting efforts.

By contrast, London-listed CYBG jumped 12 percent to the top of the STOXX 600 after reporting a rise in lending in the first quarter of its 2019 fiscal year, facing down strong competition on Britain’s housing mortgage market.

Asia

Shares have advanced in Asia following a rally on Wall Street led by technology companies. There was little if any immediate reaction to President Donald Trump’s State of the Union address.

Japan’s Nikkei 225 index gained 0.1 percent to 20,874.06 early Wednesday. Australia’s S&P ASX 200 rose 0.3 percent, helped by buying of banks’ shares, to 6,026.10, while the Sensex in India jumped 0.6 percent to 36,836.43. Markets in Hong Kong, mainland China and most of Southeast Asia were closed for lunar new year holidays.

The overnight rally in US markets, supported by strong corporate earnings, extended the benchmark S&P 500 index’s winning streak to five days.

More than 68 percent of companies reporting earnings in the S&P 500 beat analyst forecasts during the most recent quarter. Those results, in part, helped drive the market’s best January in 32 years.

Oil

Oil fell below $62 a barrel on Wednesday after a report showed a rise in US crude inventories, countering expectations of a tightening market in 2019 because of OPEC-led supply cUSand US sanctions on Venezuela.

US crude inventories rose by 2.5 million barrels last week and gasoline stocks also increased, the American Petroleum Institute said. The government’s official supply report is due later on Wednesday.

Brent crude, the global benchmark, slipped 24 cents to $61.74 a barrel by 1442 GMT. US West Texas Intermediate (WTI) crude was down 33 cents at $53.33.

Supply cuts by the Organization of the Petroleum Exporting Countries (OPEC) and allies since January have been supporting prices. US sanctions on Venezuela’s state oil company could also lift prices, though they have yet to trigger any sharp increase. The producers known as OPEC+ began cutting production by 1.2 million barrels per day (bpd) from last month to avert a new supply glut and OPEC has delivered almost three quarters of its pledged cuts already, a Reuters survey showed.

Venezuela, like fellow OPEC members Iran and Libya, was exempt from production curbs under the deal on expectations that its output faced involuntary downward pressure in 2019.

Currencies

The Australian dollar fell on Wednesday after the country’s central bank opened the door to a possible rate cut as it acknowledged growing economic risks, while the US dollar held steady against a basket of major currencies.

In a shift from the Reserve Bank of Australia’s long-standing tightening bias, Governor Philip Lowe said rates could move in either direction, depending on the strength of the labour market and inflation.

“The Aussie is definitely where the action is today,” Minh Trang, senior currency trader at Silicon Valley Bank in Santa Clara, California.

“The language was a bit more dovish than expected,” he said.

The policy shift caught some investors off-guard as the previous day the Reserve Bank of Australia had steered clear of an easing signal when holding its official cash rate at a record low 1.50 percent. The Aussie was 1.48 percent lower at $0.713, on pace for its worst one-day decline in a year.

The sharp selloff also weighed on the New Zealand dollar and the Canadian dollar with both these currencies logging declines against their US counterpart.

More broadly, the dollar index, which tracks the greenback versus the euro, yen, British pound and three other currencies, was up 0.15 percent at 96.211.

US President Donald Trump’s State of the Union speech on Tuesday held little in the way of surprises for currency traders.