ASX falls as investors trade cautiously ahead of busy week

The four major banks made some minor losses. Commonwealth Bank led the losses, falling 0.8 per cent to $74.24, while Westpac went down 0.4 per cent to $29.47 and NAB dropped 0.7 per cent to $27.84. ANZ posted a more modest fall, down 0.2 per cent to $28.94.

Data out from China showed that industrial production for June was weaker, falling to 6 per cent, compared with expectations it would hit 6.5 per cent. While the data also showed that crude steel production rose 7.5 per cent in June, that wasn't enough to lift the Australian iron ore miners who fell lower on Monday. BHP Billiton shares fell 0.8 per cent to $33.07, while Rio Tinto shares went down 0.5 per cent to $79.41.

The Australian Financial Review reported on Monday that G8 Education board had engaged the services of investment bank UBS and law firm Allens to keep an eye on trading in the company's shares and other moves in the child care market as private equity companies eye off the sector. Its shares rose 5.5 per cent to $2.51.

Bega Cheese shares rose following local reports on the weekend that its bid was the front runner to buy the old Murray Goulburn milk powder plant in Koroit, beating out international rivals. It shares rose 3.6 per cent to $7.57.

Stock watch

Domino's Pizza

Morgan Stanley lifted Domino's Pizza's price target to a street high $65, from $55, and retained its 'overweight' rating for the stock, saying that once execution in the company improved, the market would begin to focus on the company's largest value driver, Europe. The broker said that the long-term potential in Europe was underappreciated and that Domino's had a significant competitive advantage in the low penetration Southern regions of France, given the company's online and scale advantages. The broker forecast the store count in Europe would rise from 1,900 to 2,600 by the 2025 financial year. The lift in store count in the next few years is one of the key catalysts to Morgan Stanley's price target upgrade. The broker added that it believes the expected headwinds following the ongoing Australian franchising inquiry are overplayed.

What moved the market

US Oil output

Oil rigs deployed in United States oil plays are remaining at their highest level since March 2015, with oil rig numbers increasing in the past few months due to stronger US oil prices. The number of oil rigs has plateaued in recent weeks, but remains at the multi-year high although the number of oil rigs is beginning to weigh on the strong price of oil. West Texas Intermediate oil prices have fallen sharply on supply concerns after touching a three year high last week. The high level of US oil production remains the key oversupply risk in the oil market. Despite the number of oil rigs sitting at 2015 levels, the actual oil output is well above the levels seen when the number of rigs was at a similar level.

Aluminium

The price of aluminium has continued to ease away from its record highs earlier this year, wiping almost all of the 'Russian premium' that was experienced after the US imposed sanctions on Russian oligarch Oleg Deripaska's companies, including Rusal, the world's second largest aluminium company. Aluminium has followed the recent fall in base metal prices amid rising trade tensions between the United States and China, with China's exports set to put further downward pressure on its price. China's aluminium exports rose nearly 11 per cent for the year last month, taking the country's total aluminium exports to a record level in the first half of the year.

New Zealand dollar

The New Zealand is expected to continue to trade defensively against the US dollar this week, continuing its recent downward trend. New Zealand's second quarter consumer price index inflation data will be released on Tuesday and consensus forecasts are suggesting that while headline CPI inflation will accelerate, the increase will not be enough change the Reserve Bank of New Zealand's outlook on the official cash rate. CBA senior currency strategist Elias Haddad said in a note on Monday that core inflation remained relatively subdued and that the official cash rate would remain on hold until November 2019.

US Bond yields

The US bond yield curve is continuing to flatten, with the US 2-year bond yield now just 25 basis points away from the 10-year bond yield despite starting last week with a gap of 30 basis points. The gap is currently at its lowest level in 11 years and is edging closer to inversion, a key historical indicator of a recession, although analysts are remaining divided on whether this will be the case this time. Some market analysts are saying that the alarm could be overhyped however, saying that years of central bank easing has depressed interest rates and made debt markets far more placid than they once were. However other analysts are still warning that the yield curve inversion would still hurt the financial system.