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Financial Markets Decline; Record Bond Issuance Continues

Financial Markets Decline; Record Bond Issuance Continues
Gold futures decreased 1.7 percent to $1,332.70 an ounce and oil futures reversed early gains.
Feb 21, 2018 By Simon Herrmann Tags: Stocks for Breakfast

U.S. stocks halted a six-day rally as disappointing results from Walmart Inc. weighed on major indexes as the dollar pushed higher. Treasuries fell amid a heavy slate of U.S. debt issuance, with short-end auctions drawing some of the highest yields in almost a decade.

Gold futures decreased 1.7 percent to $1,332.70 an ounce and oil futures reversed early gains.

The S&P 500 Index slipped below its average price for the past 50 days. Walmart sank 10 percent, while a rally in chipmakers boosted the Nasdaq 100 Index. The Treasury’s auctions of two-year notes and three- and six-month bills went off at rates unseen since 2008, while the 10-year rate was up to 2.89 percent. The greenback gained versus major peers.

In Europe, the Stoxx 600 index edged higher after a pullback in equities emerged in Asia following several days of increases. Benchmarks in Japan and South Korea slid more than 1 percent. The yen weakened. Elsewhere, WTI oil traded in New York climbed above $62 a barrel for the first time in more than a week. Bitcoin broke above $11,500, almost double its intraday low from just two weeks ago.

  • The S&P 500 fell 0.6 percent as of 4 p.m. in New York.
  • Walmart sank 10 percent and Home Depot was little changed after its results.
  • The Nasdaq Composite Index added 0.2 percent, while the broader Nasdaq Composite declined 0.1 percent, erasing all of the gains
  • The Stoxx Europe 600 Index rose 0.6 percent.

Bond Market Madness

The latest debt-ceiling drama is over, and the floodgates are open for the U.S. Treasury to step up issuance. It’ll be up to bond traders this week to signal how much that extra supply will cost American taxpayers.

Investors are already demanding higher rates from borrowers across money markets, and that’s before the nation’s ballooning budget deficit causes even more short-term issuance later.

As supply increases, it's not so much demand that is an issue, but at what price.

Source: Bloomberg, Iress, Reuters, SMH, wise-owl

BHP Billiton Tumbles amid Results; ASX Futures Down

ASX Futures trade 28 points lower this morning after U.S. stocks snapped a winning streak overnight and BHP Billiton fell in overseas trading after announcing results to the market.

The S&P/ASX 200 closed at 5,941, down 0.7 per cent on Tuesday.

The world's largest miner, BHP Billiton (ASX:BHP) tumbled 4.6 per cent in London, dragging the FTSE 100 lower and falling 4.4 per cent in New York. Revenue rose 16 per cent to U$21.8bn, while net profit tumbled 37 per cent to roughly U$2bn. The miner utilised free cash flow to lower its debt and rewards shareholders with higher dividend distributions thanks to a rise in underlying profit, however the company blamed the U.S. tax reform for the sharp drop in after tax profit. The company was hit with a one-off income tax charge of US$1.83 billion as a result of the US tax law change.

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Simon Herrmann Author: Simon Herrmann Feb 21, 2018

Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.

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