Updated April 02, 2017 12:39:53

Photo: Inventories of imported iron ore at 46 Chinese ports now stand at 132.5 million tonnes. (Reuters)

Global markets will kick off their second quarter in a state of uncertainty, with a generally brighter economic picture being clouded to some extent by political uncertainty.

US stocks gained almost 6 per cent over the past three months, although the quarter finished on a quiet note as a few profits were taken off the table in the last session of the quarter on Friday.

The local market looks like opening tentatively, with ASX SPI200 futures over the weekend up an unconvincing 0.1 per cent.

RBA to stay on hold

There has been a lot of action in interest rates of late and none of it coming from the Reserve Bank.

That trend will continue will continue at Tuesday's RBA board meeting where the official cash rate will remain parked at 1.5 per cent.

Future markets have priced in only a 2 per cent chance of a cut and no chance of a rise.

Citi's Paul Brennen said the outcome was a "no-brainer" for the board.

"Monetary policy is currently sandwiched between underlying inflation that is below target and reaccelerating house prices," Mr Brennan said.

"There is little to no scope for a rate change in either direction."

However, Mr Brennan described the next meeting in May as more interesting and "somewhat live".

"This will be the first chance to see whether underlying inflation is actually picking up to 2 per cent," he said.

Interestingly, the board is likely to be briefed on the latest Financial Stability Review, which is due to be publicly released later in the month.

That briefing will provide the most up-to-date account of the amount of debt building up in Australian households, the ability to re-pay it and the risks involved.

Overall, the RBA will be happy the banks have been targeting investors with their recent out-of-cycle rate rises and that APRA has again tightened the screws on investor lending, albeit rather lightly.

Mr Brennan said more APRA action should be coming down the track, given the RBA's long-standing concerns about high household debt levels.

That action is likely to be in form of further reductions in the 10 per cent investor loan speed limit and further toughening lending standards, including demands that investors pay larger deposits and justify non-salary earnings.

Trade surplus to bounce back as retail and building soften

After a couple of quiet weeks the Bureau of Statistics cranks out some interesting pieces of data with retail sales (Monday) expected to show shoppers keeping a pretty tight rein on spending.

Building approvals (Monday) are notoriously volatile. Taking that in account, the market is tipping that February's numbers will provide evidence that boom-time conditions may have peaked.

The forecast is approvals will be down 2 per cent, in what would be the second successive month of declines.

The trade balance is another tricky one to pick, particularly after the epic miss last month where market pundits over-cooked their forecasts of a surplus by around $2 billion.

It is safe enough to bet a commodity-export-driven surplus will stay in place, with the consensus being around $2 billion. NAB, somewhat wary about the previous exuberance and mindful of a sharp drop-off in coal shipments out of Newcastle, is expecting a more modest $1.2 billion surplus.

Commodity markets under stress from oversupply

While equities have been rattling along, oil looks set to take the wooden spoon as the first quarter's worst performing asset.

The 7 per cent slide since the start of the year would have been even worse if not for the production cut deal struck between OPEC and Russia coming into effect and, perhaps surprisingly, still holding firm.

The key global measure, Brent futures, fell marginally on Friday, but over the week pushed higher on speculation the production cuts would be extended beyond the initial six-month deal.

However, pushing up against the 1.8-million-barrel-a-day cut from OPEC and Russia is the return to vigour of US shale oil producers.

The past quarter has seen the strongest growth in US oil rigs entering production since the heady, wildcatting days of 2011.

Rig numbers have doubled in the past 10 months, with now in excess of 660 pumping furiously away and more being added every week.

While oil is holding above $US50 a barrel, speculation is mounting that traders are getting a bit nervous and are about to take some profits off the table.

Iron ore traders are probably enduring an even more nerve-wracking time than their colleagues in front of the oil screens.

Inventories of imported iron ore at 46 Chinese ports now stand at 132.5 million tonnes, according to a report on Reuters over the weekend.

That is the highest level since data started being published in 2004.

On what must have been a quiet day at the office, SteelHome analysts have tallied up the figures and concluded there was enough iron ore lying around the ports to build almost 13,000 Eiffel Towers.

That figure does not include another 40 million tonnes said to be piled up at steel mills.

While exporters have enjoyed the 80 per cent surge in prices, the flip side is that it has encouraged previously uneconomic domestic mines back into production.

In recent weeks some port authorities have reportedly been turning away vessels carrying lower grade ore.

Reuters quoted China Iron and Steel Association vice-chairman Li Xinchuang as saying the build-up of stockpiles "will be very dangerous for the price". Quite.

Unfortunately, China's steel restocking cycle is said to be nearly done for the time being and a new set of restrictions on property purchases has left the market pondering where the next wave of demand will come from to chew up the glut.

A freshly-minted Eiffel Tower anyone?

Topics: business-economics-and-finance, company-news, economic-trends, markets, stockmarket, australia

First posted April 02, 2017 12:33:09