Stock market swings fail to impact cattle market

07 February 2018

It has been a turbulent 48 hours on the US stock market with the Dow Jones Index collapsing 1,175 points (or 5%) on Monday, compounding its 666 point fall on Friday, before it recovered 567 points to finish Tuesday trading at 24,913 points (US time).

The market falls followed news on Friday that US non-farm payrolls (as discussed in What's driving the Australian dollar) in January were above expectations, triggering fears of inflation and a subsequent interest rate hike. Additionally, many investors also had concerns the US stock market had overheated following a spectacular run of growth throughout 2017. Despite all this, the Dow Jones Index is still currently trading above any level achieved prior to where it opened in 2018.

As expected, the Australian stock market has followed a similar path with an initial drop before recovering some of the lost ground today.

The big swings on Wall Street have had no or limited impact on the US cattle market, with Australia following a similar holding pattern. The Eastern Young Cattle Indicator (EYCI) finished Tuesday at 538.00¢, up 3.75¢/kg cwt week-on-week, while east coast grids opened this week with only some minor adjustments.

The US cattle futures and spot markets have been tracking mostly sideways so far this week. In fact, feeder futures, and to a lesser extent lot fed cattle, lifted on Friday following news of a smaller than expected increase in the 1 January 2018 beef herd and its implications for the 2018 calf crop.

Most commentators believe the fall in the stock market is not reflective of any fundamental demand side concerns – in fact, it’s more a reflection of the US economy running too hot – and beef and cattle prices in the US should not be significantly impacted by swings on Wall Street. As discussed in US beef's production wave, the United States Department of Agriculture (USDA) is projecting US beef consumption this year to reach the highest levels since 2010.

More importantly for Australia, however, the increased prospect or eventual occurrence of a US interest rate hike will place upward pressure on the greenback. The Australian dollar is currently trading at US79¢, a bit below the US81¢ where it was tracking this time last week.

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