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Market report: Thursday, December 3

Business

UPDATED: The Australian dollar has fallen on the back of increased expectations of an interest rate rise in the US and following weak international trade figures.

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At noon (AEDT) on Thursday, the currency was trading at 72.89 US cents, down from 73.05 cents on Wednesday.

It has fallen steadily from its overnight peak after US Federal Reserve chair Janet Yellen indicated in a speech that she doesn’t want to wait too long before raising interest rates.

The Australian dollar’s fall got steeper late in the morning after trade figures showed that the deficit widened to $3.3 billion in October, which was worse than market expectations of a $2.6 billion deficit.

Previously, at 10.11am (AEDT) on Thursday, the benchmark S&P/ASX200 index was down 57.0 points, or 1.08 per cent, at 5,201.3, while the broader All Ordinaries index was down 54.9 points, or 1.03 per cent, at 5,249.8.

On the ASX 24, the December share price index futures contract was down 69 points at 5,209 with 6,878 contracts traded.

The Australian dollar was flat after heightened speculation about a US interest rate hike caused the currency to lose all the gains made on the back of local economic growth data.

At 7am (AEDT) on Thursday, the local unit was trading at 73.05 cents, level with the local close on Wednesday.

The currency rallied to a high of 73.43 US cents overnight after the release of better than expected Australian economic growth figures for the September quarter were released on Wednesday.

The Australian dollar steadily fell after a US private sector jobs report raised hopes of a US interest rate hike this month.

Westpac strategist Imre Speizer said Yellen’s speech dominated market sentiment overnight.

“The US dollar bounced rose overnight amid contrasting dataflow in the US and Europe and a hawkish speech from Fed chair Yellen,” he said.

Locally on Thursday, the Australian Bureau of Statistics will release international trade figures for October and Australian Industry Group Australian Performance of Services Index (PSI) for November is due out.

NEW YORK – Wall Street stocks are lower, led by drops in energy shares, after comments by Federal Reserve chair Janet Yellen suggested the US central bank may be ready to raise interest rates.

The Nasdaq fell into negative territory, despite record highs in Alphabet, Amazon and Netflix. Yahoo jumped 5.2 per cent to $35.46 after reports the company could sell its core Internet business.

In a speech to the Economic Club of Washington, Yellen said she was “looking forward” to a rate hike that will be seen as a testament to the economy’s recovery from recession.

She did not indicate if she still expected an increase would be warranted at the Fed’s policy meeting on December 15-16.

In the final hour of trade, the Dow Jones Industrial Average is down 141.23 points at 17,747.12.

The broad-based S&P 500 lost 20.24 points to 2,082.37, while the tech-rich Nasdaq Composite Index fell 25.32 points to 5,130.99.

LONDON – Weak inflation data spurred hopes the European Central Bank could deliver more stimulus this week, though European bourses traded in a tight range, Frankfurt and Paris ceding spartan ground while London rose slightly.

The data appeared to cement hopes that the ECB – which announces the outcome of its latest monetary policy meeting on Thursday – will ramp up its quantitative easing (QE) bond-buying program.

Inflation in the 19-nation eurozone area was unchanged in November at just 0.1 per cent, official data showed, dashing expectations of an acceleration to 0.2 per cent.

London’s FTSE 100 index added 25.39 points to 6420.93 cent at the close on strong pharmaceuticals but Frankfurt posted a drop of 71.22 points to 11190.02, after troubled carmaker Volkswagen reporting a drop in German sales.

TOKYO – Asian markets have been hit with fresh volatility, with Shanghai experiencing sharp swings, as weak manufacturing data highlighted weakness in the global economy but raised hopes central banks would stick to a loose monetary policy.

Official figures showing that a gauge of Chinese manufacturing activity hit a three-year low in November were followed later in the day by news that US activity contracted at the fastest pace since June 2009.

While the US economy, the world’s biggest, has shown strong signs of recovery, traders remain nervous about the future.

Asian stock markets shifted in and out of positive territory. Shanghai ended 2.3 per cent higher after tumbling more than two per cent at one point.

Hong Kong ended 0.4 per cent higher but Tokyo, and Seoul closed lower.

ENERGY

US oil prices closed below $US40 a barrel for the first time since late August Wednesday following data showing both higher US oil stockpiles and production.

The fall in prices also came ahead of an OPEC meeting that is not expected to cut production.

US benchmark West Texas Intermediate for delivery in January fell $US1.91, or 4.6 per cent, to $US39.94 a barrel on the New York Mercantile Exchange.

Brent North Sea crude for January delivery fell $US1.95 to $US42.49 a barrel in London.

The weekly Department of Energy inventory report was “bearish no matter how you cut it,” said Bob Yawger, analyst at Mizuho Securities.

The report showed a 1.2 million barrel build in commercial inventories and higher supplies of heating oil, evidence that warm early winter weather is translating into low fuel consumption.

The data also showed a rise of 37,000 barrels a day in US oil production.

“There’s not one speck of bullish sentiment in that report today,” Yawger said. “That’s enough to send the market south in its own right.”

Yawger said the market also took its cue from news that Saudi Arabia lowered its prices to US buyers, a “slap in the face” to other members of the Organization of the Petroleum Exporting Counties that have advocated output cuts to reverse falling prices.

PRECIOUS METALS

Gold fell to its lowest in nearly six years, extending losses as Federal Reserve Chair Janet Yellen said she was “looking forward” to an interest rate hike that will mark the US economy’s recovery from recession.

In a speech, Dr Yellen did not indicate if she still expected a rate hike would be warranted at the Fed’s last remaining policy meeting this year on Dec. 15-16.

Her comments lifted the US dollar to its highest against the euro in more than seven months.

Bullion prices slightly pared losses when the Fed later said in its Beige Book report that the US labour market tightened modestly in recent weeks with some upward pressure on wages and that US economic activity continued to expand at a modest pace in most regions.

Spot gold was down 1.4 per cent at $US1,053.70 an ounce, having fallen to the lowest since February 2010 at $US1,050.25. US gold futures for February delivery settled down 0.9 per cent at $US1,053.80 an ounce after falling to the lowest since October 2009 at $US1,049.40.

Prices have been pressured by expectations that the Fed will raise rates for the first time in nearly a decade this month, even as the European Central Bank is expected to ease policy further at a Thursday meeting.

Rising rates would lift the opportunity cost of holding non-yielding gold, while boosting the US dollar.

BASE METALS

Copper prices fell on a strong dollar and persistent worries over demand in China, but a pledge by Chinese smelters to cut output and continued falls in stockpiles raised prospects for a short-covering rally.

Three-month LME copper ended down 1.6 per cent at $US4,560 a tonne. Prices slumped 10 per cent in November, the biggest monthly loss since January.

The US dollar rose strongly on Wednesday after better than expected US ADP employment data supported a rate hike by the US Federal Reserve in December. A strong dollar makes dollar-priced metals costly for buyers using other currencies.

On Tuesday, 10 major copper smelters in China, the world’s top copper consumer, said they would cut output by 350,000 tonnes next year, and also asked the government to buy metal for its strategic stockpile.

That follows similar moves already announced by China’s nickel and zinc makers.

“Like other production cuts markets are somewhat sceptical and still worried about demand; that hasn’t changed,” said Citi analyst David Wilson.

“At the same time, we see decent consumer buying, London Metal Exchange stocks are falling, there was a healthy draw in Shanghai last week. It doesn’t seem like a market that’s dramatically over-supplied.”

ASX stocks to watch

BHP – BHP BILLITON – down 39 cents, or 2.08 per cent, at $18.36

RIO – RIO TINTO – down 80 cents, or 1.72 per cent, at $45.75

FMG – FORTESCUE METALS – down 1.25 cents, or 0.63 per cent, at $1.953

Shares in the the big miners are down after there were significant falls in commodity prices overnight, especially iron ore.

NUF – NUFARM – down 52 cents, or 6.12 per cent, at $7.97

Farm chemical and seed company Nufarm is facing a fall in underlying profit for the first half of the financial year.

STO – SANTOS – up one cent, or 0.25 per cent, at $4.07

Santos shares have resumed trading after the energy giant wrapped up the sale of shares left over from its $2.5 billion capital raising.

SPO – SPOTLESS – up 0.5 cents, or 0.4 per cent, at $1.33

Spotless shares aare bouncing back after plunging by more than 40 per cent on Wednesday when the cleaning, catering and maintenance provider stunned investors with a profit warning.

AAP

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