Risk On Sentiment Dominates Overnight

Stock Markets

US:Trading overnight was dominated by a definite 'risk-on' sentiment in most assets. Stocks closed higher while gold sold off, oil rallied and us bonds sold off. The Dow Jones closed 1.25% higher, as did the S&P 500 while gold lost US$15 per ounce. This brings the Dow's gain to a healthy 2.84% for the week that more than undoes the losses of the prior week. The US released its revised second quarter GDP estimate last night which came in at 2.0%. This was slightly below the 2.1% first estimate. According to the Atlanta Fed GDPnow tracker, the forecast for third quarter GDP is currently 2.3%, indicating a slight pick-up in activity in the third quarter.

ASX:The ASX 200 is expected to follow US stocks higher this morning after a flat day yesterday. ASX 200 futures are currently up 47 points. Wesfarmers (WES) shares will go ex-dividend today for the company's $0.78 final dividend. ASX oil shares, such as Woodside Petroleum (WPL), should have tailwinds today as the oil price rose overnight on the back of a large drawdown in inventories and a corresponding rally in the US energy sector.

Commodities & Currencies: US bond yields are back near record lows in a sign that bond markets are very sceptical of future economic growth. In fact, the dividend yield on the S&P 500 is now higher than the yield on long dated US bonds. This is an unusual situation that has only occurred a few times in the past. Furthermore, the current inverted yield curve (where long term yields are lower than short term yields) has traditionally been seen as a sign of an upcoming recession.

The spot price of gold is currently down 0.78% at US$1,528 per ounce. 

The AUD is currently down 0.15% at US$0.673.

This article was written by William O'Loughlin – Portfolio Manager, Rivkin Securities Pty Ltd. Enquiries can be made via [email protected] or by phoning +612 8302 3633.