ASX poised to rise on Fed rethink

ASX futures were 42 points higher at 8am AEDT. The Australian dollar slipped to US71.11¢.

The initial read on the Fed's decidedly dovish tilt this week was caution, and concern about whether the US central bank was tipping a far more clouded outlook for the US economy than most everyone else.

However, economic data overnight bolstered optimism about the economy. Initial claims for jobless benefits fell more than expected and mid-Atlantic factory activity rebounded sharply.

“The market is concerned about economic growth, but the Fed stepping to the sidelines is very bullish for risk-takers,” Doug Cote, chief market strategist at Voya Investment Management in New York, told Reuters. “It’s a delayed market reaction to good news.”

All three Wall Street equity benchmarks were sharply higher in late trade. The US listed shares of Atlassian reached a record high as tech shares rallied.

Levi Strauss surged 31.8 per cent in its return to the market.

Apple leapt more than 4 per cent at one point to its highest since November 9. The iPhone maker's shares have surged more than one-third since early January.

Fundstrat Global's Thomas Lee is not surprised, saying in a report that while the consensus sees the equity bull market being "late cycle", the key data he follows points to "mid cycle".

"Three months into 2019, the S&P; 500 has the best YTD start in more than 30 years and indeed, 2019 is tracking closely to 2009," Mr Lee wrote.

"We would argue this was 'pre-ordained' on January 1 as the systematic waterfall liquidation in late-2018 (similar to late-2008) triggered not only broad-based losses (high-yield had a rare negative year) but was large enough to shift Fed policy (Fed is essentially done now)."

Mr Lee said there would appear to be a lot of potential fuel to power equities higher.

"It is worth keeping in mind there is substantial 'dry powder' on the sidelines by retail investors and hedge funds.

"Since August 2018, individual investors have taken money out of the equity market with money market balances soaring to $US3.1T, the highest since March 2010. Moreover, this has grown by 10% in the past 4 months alone.

"In the meantime, JPMorgan Prime Brokerage data shows hedge funds are still stubbornly net short equities and HF beta is still negative (tracking beta negative means they are short).

"The bottom line is two large constituents could be substantial inflows, if our analysis is correct."

Not all agree. Capital Economics reiterated that it thinks the Fed is still too optimistic about the US economy, and that the Fed will cut rates by 75 basis points in the first half of 2020.

Ahead of those cuts, Capital Economics sees the S&P; 500 shedding about 20 per cent of its value, ending this year at 2300.

No local data:

Overseas data: Japan national CPI February, Nikkei PMI manufacturing March; Euro zone Markit manufacturing and services PMIs March; US Markit manufacturing and services PMIs March, Existing home sales February

SPI futures up 42 points or 0.7% to 6197 at 8am AEDT

Chanticleer: Shock twist in bank cartel case: JP Morgan's decision to seek immunity in the ACCC's criminal cartel case against ANZ, Citi and Deutsche has an intriguing back story.

Four stock tips for volatile markets: Fund managers see opportunities in the technology, mining, and industrial sectors, as large companies battle sluggish growth.

Bonds headed deeper into uncharted territory: Bond traders are now pricing in an increased probability that the Reserve Bank will lower the cash rate at least once before the end of the year.

Bad liquidity behind stock chaos: JPMorgan's latest note highlighted a less scrutinised phenomenon: liquidity's role in driving stocks higher.

An Apple-led tech rally pushed Wall Street higher on Thursday as jitters over the Federal Reserve’s forecast of an economic slowdown were calmed by upbeat economic data.

All three major US stock indexes ended the session in the black, with the Nasdaq showing its fifth straight advance, the Dow posting its best day in over a month and the benchmark S&P; 500 closing less than 3 per cent below its all-time high set in September.

Apple led the tech sector’s advance, rising 3.7 per cent ahead of the company’s expected streaming service debut next week.

Advancing issues outnumbered declining ones on the NYSE by a 2.45-to-1 ratio; on Nasdaq, a 1.50-to-1 ratio favoured advancers.

RBC Capital Economics still bullish on US economy: "We walked in this morning to renewed questions about the fate of the economic expansion. In fairness, at this point it seems to be a small group asking, but enough to prompt us to write about it.

"The catalyst for this narrative seems to be 'perhaps the Fed knows something we don’t'. With all due respect to this idea, in most instances, the Fed tends not to have any better information than the rest of us – any advantage they have is speed (with some things, they know it a little quicker).

"In short, we are dismissive of the idea that they are sitting on something."

RBC said "the Fed is no better at forecasting the backdrop than the consensus (and it’s also worth pointing out that over recent years they have tended to underestimate growth)".

European leaders are set to throw cliff-edge Britain a Brexit lifeline: An EU summit this morning (AEDT) will offer a short delay if MPs pass Theresa May's Brexit deal, but might also signal a longer delay if a no-deal Brexit looms.

Bosses, workers unite as business braces for potential no-deal Brexit: Lobby groups have sounded the alarm in a letter to PM May, as concerns grow that her brinkmanship will push Britain out the door on March 29.

The pan-European STOXX 600 index dipped 0.1 per cent, driven by falls in Dublin, Madrid and Frankfurt that contrasted with a strong reaction on Asian markets to the Fed's statement and news conference.

The banking sector, which tends to suffer when expectations for future interest rates fall, dropped about 1 per cent, led by Deutsche Bank.

A warning about falling investment banking revenues from UBS played into that decline for a sector that had risen earlier in the week on signs of a merger between Deutsche and Commerzbank.

Reflecting broader economic concerns, the travel and leisure sector also took a hit with resort-owner Merlin falling about 6 per cent after Berenberg downgraded the stock to "sell".

The Hang Seng index fell 0.9 per cent to 29,071.56, while the China Enterprises Index lost 0.7 per cent to 11,544.09.

Losers were led by telecommunication and IT firms.

The Hang Seng telecommunication index slumped 3.2 per cent, posting its worst day in a year. The IT index closed down 1.8 per cent, as market eyed gaming giant Tencent's quarterly results.

Tencent Holdings is set to report on Thursday its sharpest quarterly profit decline in more than 13 years, as its failure to launch new blockbuster games due to China's regulatory review capped revenue growth.

Pantheon Macroeconomics on the Bank of England: "Unlike other central banks, the MPC has stuck to its message that 'an ongoing tightening of
monetary policy over the forecast period' likely will be required to keep inflation close to the 2% target, provided a no-deal Brexit is avoided.

"The Committee voted unanimously yesterday to keep Bank Rate at 0.75%, with none of the nine members making a case for immediate easing or softer guidance.

"Nothing in the minutes of the meeting challenged our view that the Committee will increase Bank Rate to 1.00%, from 0.75%, in the second half of this year, once the Brexit chaos has abated."

Saxo Bank chief economist Steen Jakobsen's currency bets in the wake of the Fed's latest policy positioning: "Underweight the two credit monsters: GBP and AUD. Overweight the US dollar, NOK, CHF, JPY. I like carry (for the summer) in TRY, ZAR and BRL."

Marex Spectron on ferrous metals: "Our current assessment of short-term supply remains bullish. Although we picked up a marginal increase in forward supply, it continues to be tighter than its long term trend.

"We continue to see a slowdown in IO volumes arriving into China. This should go on to support prices that were dragged down by poor re-stocking efforts by end-users as various sintering cuts in China continue to plague part of northern China. Spot supplies continue to tighten which should go on to support iron ore prices.

"Overall, demand conditions are marginally bearish. Steel margins finally began to pick up given the rebound in downstream steel demand, as well as the slowdown in steel rates.

"Our Domestic vs. Import Arb. turned bullish which suggests a marginal preference for seaborne ore in the short-term. However, our Cash and Carry Arb continues to show near-term weakness."

Australian shares closed slightly higher on Thursday following a late rally as volatile trading in global markets seeped into the local sharemarket following a more dovish tone from the US Federal Reserve.

The S&P;/ASX 200 Index rose 1.9 points, to 6167.2, while the broader All Ordinaries closed 1.7 points higher at 6253.5.

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