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Market report: Monday, January 18

Business

The Australian bond market has strengthened as oil prices slide further and US data disappoints.

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ANZ economists said local bonds tracked trends in US Treasuries, which rallied on Friday night as Iran edges closer to re-establishing its crude oil export program.

“The lifting of sanctions for Iran contributed to a further five to six per cent slide in oil prices,” they said.

Iran is expected to increase exports to half a million barrels per day, adding to concerns about a global over-supply.

“While this has largely been built into the price, Iran’s likely strategy in offering discounts to entice customers could see further downward pressure on prices in the near term,” they said.

Meanwhile, US retail sales unexpectedly fell in December as unseasonably warm weather undercut sales of winter apparel and cheaper petrol weighed on receipts at service stations, adding to signs that economic growth braked sharply in the fourth quarter.

“(This reinforces) the recent tempering of market expectations for Fed rate rises in 2016,” ANZ economists said.

Westpac Strategist Imre Speizer said markets were now pricing in less than a 30 per cent chance of a rate rise in March, and are not fully pricing in a hike until early 2017.

Speizer tipped the market to be quiet on Monday as the US observes a public holiday.

At 8.30am (AEDT) on Monday, the March 2016 10-year bond futures contract was trading at 97.370 (implying a yield of 2.630 per cent), up from 97.310 (2.690 per cent) on Friday.

The March 2016 three-year bond futures contract was at 98.150 (1.850 per cent), up from 98.080 (1.920 per cent).

The Australian bond market has strengthened as oil prices slide further and US data disappoints.

At 8.05am (AEDT) on Monday, the local unit was trading at 68.39 US cents, down from 69.54 cents on Tuesday.

And the Australian share market looks set to open lower after Wall Street fell sharply with the S&P 500 sinking to its lowest since October 2014 as oil prices sank below $30 per barrel and fears grew about economic trouble in China.

The share price index was down 87 points at 4,745.

The Australian market looks set to open lower after Wall Street fell sharply with the S&P 500 sinking to its lowest since October 2014 as oil prices sank below $30 per barrel and fears grew about economic trouble in China.

Locally, in economic news on Monday, the Australian Bureau of Statistics is due to release December new motor vehicles sales figures while the TD Securities-Melbourne Institute’s inflation gauge for December is also expected.

No major equities news is expected.

NEW YORK – Wall Street has bled, with the S&P 500 sinking to its lowest since October 2014 as oil prices sank below $US30 per barrel and fears grew about economic trouble in China.

Pain was dealt widely, with Friday’s trading volume unusually high and more than a fifth of S&P 500 stocks touching 52-week lows. The major S&P sectors all ended sharply lower. The Russell 2000 small-cap index dropped as much as 3.5 per cent to its lowest since July 2013.

The energy sector dropped 2.87 per cent as oil prices fell 6.5 per cent, in part due to fears of slow economic growth in China, where major stock indexes also slumped overnight. The energy sector has lost nearly half its value after hitting record highs in late 2014.

“Initially when oil was down, the convenient line was ‘Well, it’s good for the other nine sectors’,” said Jake Dollarhide, chief executive officer of Longbow Asset Management in Tulsa, Oklahoma.

LONDON – Britain’s top share index has fallen to its lowest closing level in more than three years, hit by losses in commodity-related stocks as BHP Billiton suffered a major writedown and oil fell below a key level.

Concerns over China, the world’s second-biggest economy and biggest consumer of metals, have hit oil and metals prices.

“This is a commodity-driven fall on the markets. Oil has gone below $US30, and that’s added to fears. It’s very difficult to call the bottom of this market,” said Thames Capital Markets’ trader Daniel Woodward.

HONG KONG – Asian shares have skidded to three-and-a-half-year lows.

Oil prices, which posted their first significant gains for 2016 on Thursday, came under fresh selling pressure on Friday as the prospect of additional Iranian supply loomed over the market.

Brent crude fell three per cent to $US29.86, heading for a weekly loss of more than 10 per cent. US crude fared even worse, sliding almost five per cent to $US29.75, and was set for a weekly decline of 10 per cent.

“It’s another risk-off day,” said Chris Scicluna, head of economic research at Daiwa Capital Markets.

“We had an awful session in Asia and that has spilt over into Europe.”

BEIJING, Jan 16 Reuters – China’s gross domestic product (GDP) totalled more than $US10 trillion ($A14.60 trillion) in 2015 and the economy grew by around seven per cent, with the services sector accounting for half of GDP, Premier Li Keqiang says.

Chinese President Xi Jinping has launched a new international development bank seen as a rival to the US-led World Bank at a lavish ceremony.

China will invite private investment to build infrastructure on islands it controls in the disputed South China Sea and will start regular flights to one of them this year, state media says.

ENERGY

Oil prices have plummeted to $29 a barrel on the impending resumption of Iranian oil exports into an already flooded market as international sanctions against the country are lifted.

“We’re seeing the final capitulation,” said Tina Byles Williams, chief investment officer at FIS Group in Philadelphia, which oversees about $4.4 billion in assets.

Williams said crude could hit $US20 a barrel, a price analysts at Goldman Sachs have said may be needed to accelerate a slowdown in drilling and return global oil inventories to a supply-demand balance that would allow prices to rise.

PRECIOUS METALS

Gold has risen nearly two per cent, after dropping for four of the previous five sessions, as a weaker US dollar and falling equity markets underpinned demand for assets perceived as safer.

Oil prices dived below $USUS29 a barrel, dragging major equity indices around the world sharply lower, as fears of a global slowdown amid a crude supply glut roiled markets and unsettled investors.

“You have pockets of risk aversion generating defensive bids in gold, but then physical buying drops away and if there’s an uptick in equities, gold falls back,” ICBC Standard Bank analyst Tom Kendall said.

“We have had a good start to the year, with prices trying to consolidate into a higher range between $US1,080 and $US1,100,” ActivTrades chief analyst Carlo Alberto de Casa said.

BASE METALS

Copper has tumbled to its lowest since May 2009, pressured by a slide in oil prices plus further losses in shares and the offshore currency in China, where weak loan data undermined sentiment.

Chinese shares fell below December’s low while the yuan weakened sharply offshore, knocking confidence about demand for metals in the world’s top consumer of raw materials.

Oil futures plunged again below $US30 a barrel as the market braced for more Iranian oil exports.

“In general terms, copper is not a soft market, but the futures market is not responding to physical signals at the moment. It’s trading on China, world macro data, equities,” said analyst Vivienne Lloyd at Macquarie.

ASX stocks to watch Monday, January 18 

BHP – BHP BILLITON

FMG – FORTESCUE METALS GROUP

RIO – RIO TINTO

Australian-listed mining stocks could find some reprieve, with the price of iron ore creeping back about the $US40-mark.

ORG – ORIGIN ENERGY

OSH – OILSEARCH

STO – SANTOS

WPL – WOODSIDE PETROLEUM

Energy stocks could be hit on Monday with oil prices falling below the $US30 milestone, with WTI down $US1.78 at $29.42 and Brent crude $US1.94 lower at $US28.

AAP

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