“Central banks around the world continue to feel the need to support asset prices after one of the longest bull markets in history and one of the longest periods in history without a recession, (in part because of the rampant levels of deficit spending and unfunded payables to their nation’s retirees). Call me crazy, but that doesn’t sound fundamentally bullish.”

Ms Hawkins questioned how much longer equity price growth can outpace economic growth.

“In today’s market to not participate is to seriously risk missing out, but just when do we pay the piper and are enough market participants paying attention to the rising risks?”

As for the potential of a US/China trade deal, the jury is out and expectations may be mostly priced in.

“Investors can expect a modest China deal that effectively will end the trade war,” said AGF’s Greg Valliere in a morning note.

“And a spring bounce-back is coming after a soggy first quarter GDP performance; by May the economy will be looking better, thanks largely to the amazing jobs market, which shows no signs of slowing — as we’ll probably see when a solid unemployment report is released on Friday morning.”

Base metals mostly fell overnight with one exception: nickel.

Benchmark nickel on the London Metal Exchange ended 0.5 per cent up at $US13,255 a tonne, having touched its highest since the end of August at $US13,485. The price has risen 24 per cent this year, the best performer among LME metals.

LME copper was down 1.1 per cent at $US6409 a tonne, aluminium fell 2.2 per cent to $US1875.50, zinc slipped 1.2 per cent to $US2751, lead ceded 1.4 per cent to $US2113 and tin finished 0.8 per cent lower at $US21,450.

Local investors will be focussed on the RBA policy decision this afternoon, and whether the central bank tilts in any particular direction.

Today’s Agenda

Local data: AiG performance of services February, Balance of payments fourth quarter, RBA policy meeting decision at 2.30pm AEDT

TD Securities puts the RBA monetary policy bias at 90 per cent neutral. “The Bank expects the central scenario to unfold in 2019 – 3% growth, inflation around 2% and unemployment around 5% – Q4 capex and Jan employment data should support the Bank’s confidence in these forecasts to be met ‘gradually‘.

“The RBA can continue to cite low rates, record low unemployment, high vacancies, the easing in macro-prudential policy, buoyant company profits, strong trade, positive spillovers from infrastructure spending, a less hawkish stance from the Fed, BoC and ECB and the potential for China cuts/stimulus to support the Bank’s forecasts. Although questions remain on the China policy response, data over the last month suggests Chinese authorities have injected liquidity into the system.”

Overseas data: China Caixin services PMI February; Euro zone retail sales January; US ISM non-manufacturing February, New home sales December

Capital Economics on China policy: “…the annual meeting of China’s Parliament, the National People’s Congress, starts on Tuesday. The government’s Work Report and Budget will be presented on the first day. These will include the new GDP growth target, which will likely be set slightly lower than in 2018, and the government’s budget, which should signal further fiscal support.”

Market Highlights

SPI futures down 58 points or 0.9% to 6155 at about 5.15am AEDT

AUD +0.1% to 70.85 US cents

On Wall St at 2.59pm: Dow -0.9% S&P 500 -0.6% Nasdaq -0.5%

In New York, BHP +0.4% Rio +0.6% Atlassian -5.8%

In Europe: Stoxx 50 +0.2% FTSE +0.4% CAC +0.4% DAX -0.1%

Spot gold -0.5% to $US1287.58 an ounce at 1.16pm New York

Brent crude +0.1% to $US65.14 a barrel

US oil +0.3% to $US55.98 a barrel

Iron ore -0.3% to $US87.69 a tonne

Dalian iron ore -2.4% to 616 yuan

LME aluminium -2.2 per cent to $US1875.50 a tonne

LME copper -1.1% to $US6409 a tonne

2-year yield: US 2.54% Australia 1.74%

5-year yield: US 2.53% Australia 1.79%

10-year yield: US 2.72% Australia 2.19% Germany 0.15%

US-Australia 10-year yield gap as of 5.18am AEDT: 53 basis points

From Today’s Financial Review

Small cap managers beat the index: A look through the history books proves that small- and mid-cap fund managers are better positioned to make money for their clients over the long term, although they will be taking higher risks.

ASIC interviewing Narev, Livingstone: CBA’s top bankers and directors are being interviewed by the corporate regulator as it moves closer to launching a landmark case against the bank.

PM: Election will be about enterprise v envy: Scott Morrison says the next election will be a contest “between enterprise and envy”, claiming the economic policy differences between the major parties are the most pronounced in more than 40 years.

United States

US stocks were lower in early afternoon trade after data showed construction spending dipped in December, offsetting hopes that a US-China trade deal was imminent and pushing the S&P 500 back after its first close above 2800 points in four months.

The trade-sensitive S&P 500 industrials index was flat, while the other 10 major S&P sectors notched declines.

“The theme the markets are dealing with is what level of slowdown makes sense,” said Michael Antonelli, market strategist at Robert W. Baird in Milwaukee.

“The construction numbers reinforce just how the brakes were being slammed on the economy last year.”

The Commerce Department reported construction spending fell 0.6 per cent in December, further evidence the economy lost momentum at the tail end of 2018.

LPL on earnings: “With 484 S&P 500 Index companies having reported, fourth quarter 2018 earnings growth is tracking to 16.7% year over year, 2.5 percentage points (ppt) above mid-January estimates and a 0.4 ppt increase over the prior week.

“Energy has produced by far the biggest upside surprise for the quarter, with communication services a distant second. The season is effectively over – the 10 S&P 500 companies reporting this week will bring the total to 494.”

LPL on bull market: “The S&P 500 bull market will celebrate its tenth birthday on Saturday, March 9, 2019. During that period, the S&P 500 has increased more than fourfold in value including dividends, producing a total return of 409% (17.7% annualised) while rising 313% in price. Concerns over the global economy, along with a potential policy mistake by the Federal Reserve (Fed) and the trade dispute with China, all have many wondering just how much the longest bull market ever could have left in the tank.”


European shares hit five-month highs on Monday with cyclical stocks outperforming defensives, helped by hopes over a deal to end the U.S.-Sino trade war.

The pan-regional STOXX 600 index rose as much as 0.6 percent during the session to its highest level since Oct. 5 before paring some gains and ending up 0.2 percent on the day.

Among top movers in Europe on Monday were shares in IAG , which hit a two-month low after the owner of British Airways and Iberia issued a clarification to say its 2019 free cash flow would be lower than last year.

Its shares fell 4.8 per cent, leading fallers on the STOXX.

Shares in Nordea, the Nordic region’s largest bank, fell 3.5 per cent on allegations of money laundering aired on Monday by Finnish broadcaster Yle.

According to Yle, Nordea handled some €700 million in suspicious transactions between 2005 and 2017.

Nordea said it had no immediate comment.

Ted Baker ended higher after Ray Kelvin resigned as chief executive of the fashion retailer, seeking to allow the fashion brand he founded to move on from misconduct allegations stemming from his habit of hugging colleagues.


Shares in Hong Kong rose on Monday, closing at their highest level in more than eight months, as Washington and Beijing were said to be moving closer to reaching a deal to end their trade war.

The Hang Seng index rose 0.5 per cent to 28,959.59 points, its highest close since June 25. The Hang Seng China Enterprises index gained 0.6 per cent to 11,575.53.

The Shanghai Composite Index climbed 1.1 per cent at the close, paring a gain of as much as 3.2 per cent after smashing through the 3,000 level that had capped gains all last week. About seven stocks rose for each that fell on the gauge. The index has now climbed 23 per cent since its January 3 low, helping add some $US1.5 trillion in value to China’s stock market.

Momentum in China’s stock market hasn’t been this strong since the peak of the bubble in 2015. The Shanghai Composite’s relative-strength index is nearing the highest levels seen that year. Almost all of its 1500-odd members are above their long-term moving averages, showing the rally is also the broadest since 2015. Turnover has surged after falling to near a four-year low in December.


Janus Henderson’s Australian fixed income investment strategist Frank Uhlenbruch: “Our base case view is that the RBA remains on hold until late 2020/early 2021, before gradually winding back the amount of monetary policy accommodation. Such a view allows for a sharp fall in dwelling investment as the amount of building falls back to longer run levels, but the drag from this is offset by strong public sector demand and a recovery in business investment. Housing prices should find a floor towards the end of the year as lower prices improve affordability and household formation. A stabilisation in housing prices removes the drag from negative wealth effects on the consumption outlook.

“We see the risks to our base case view as tilted to the downside and would need to see signs of sustained labour market weakening before shifting our base case view. Unlike current market pricing for just one easing, we would expect that in such a scenario the RBA would ease by 50bps, rather than by the 25bps of easing currently priced in.

“We currently see three year government bond yields at 1.66% (at the time of writing) as being mildly expensive with risks of significant sell-off low given that we have yet to weather a period of falling housing construction. The longer end of the curve looks expensive factoring in a very low terminal cash rate and is vulnerable to any upward reassessment of global growth and inflation prospects following recent weakness.”

TD Securities on what’s ahead for the RBA: TD thinks “that much of the damage has been done – at least in regards to AUD. The market is pricing in cuts over the coming year and yet we don’t expect any new innovations from the RBA. In turn, we think no news is good news for AUD, reinforcing the low end of the range near 0.71. We believe the recent shift in RBA rhetoric is lagging rather than a leading indicator that should reinforce the support of external drivers.”


Chinese iron ore prices surged nearly 5 per cent to a three-week-peak on Monday, as market expected steel mills to replenish their stocks amid low inventory level.

Steel mills in the world’s largest iron ore consuming country have been slowing raw material purchases after a steep run-up in prices in February.

Stocks of imported iron ore at Chinese ports continued to climb last week as of March 3, to 146.05 million tonnes, their highest level since late September, data compiled by SteelHome showed.

“Although the restocking pace at steel mills may vary and no big range of purchase is expected, steel mills still need to bring in raw materials to support operation, which will back prices to go up,” analysts from Jinrui Futures wrote in a note.

Analysts also expect the rising steel prices amid increasing demand from downstream sectors to drive up raw materials.

The most-active iron ore contract for May delivery soared as much as 4.9 per cent to 646.5 yuan ($US96.58) a tonne when market opened on Monday.

It finished up 0.7 per cent at 620.5 yuan a tonne.

Australian Sharemarket

Australian shares advanced to a six-month high on Monday as investor sentiment remained positive heading into a busy month for global investors.

The S&P/ASX 200 Index climbed 24.7 points, or 0.4 per cent, to 6217.4 while the broader All Ordinaries rose 28.7 points, or 0.5 per cent to 6302.5.

“Following a robust recovery for risk assets since the start of the year, a number of events in March are going to set the tone for global investors on whether this rebound is sustainable,” said JPMorgan Asset Management Asia Pacific chief market strategist Tai Hui.

Almost every fundie lagged the market: S&P’s latest ‘active versus passive’ funds management survey is out and it paints another unflattering picture of Australia’s funds management industry.

Street Talk

KKR, Coles toast $200m pubs deal

PwC’s multi-million dollar AVP investment could be for nought if Labor wins power

Greenlit hopes for more and more in Best & Less sale

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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