It’s with this (partial) assumption in mind, the first day of the new week, month and quarter can be viewed. For all its intricacies, complexities and ambiguities, it was the most “risk-on” day we’ve seen in a short-while; and the hope is now that this is the beginning of a significant reversal in trend.
3. The truisms hold: Maybe another reason why dubbing price action yesterday this way is that it lived-up to so many old market axioms. Ironically enough, in these situations, the coming-true of absolute, self-evident truths about the world are comparatively rare. More-often than not, it’s more common to find an exception to the rule than to observe clear evidence for the rule itself. But truly yesterday, all but a few of the hackneyed judgements about markets materialised.
Stocks ubiquitously rallied, with the S&P500 eyeing new highs. Bond yields are recovering ground after their recent tumbles. Commodities were generally higher, though (of course) gold was down. And growth currencies rallied, with the Japanese Yen leading the G10 laggards.
4. The focus on China and America: A little description, a re-cap if you will, of the data that drove this price action is definitely warranted. And here, this could be evidence of market participants’ collective desire to simplify and cherry-pick information. Markets were swept up in the hope and positivity of a series of PMI releases on Monday. There were many of them released, amongst other high-impact economic data. However, two stood out as the drivers of risk-sentiment.
The most important was Chinese Caixin PMI numbers, which validated the weekend’s “official” figures, and showed an expansionary print in that metric. The second most was US ISM PMI numbers, which delivered a robust print itself, beating economists consensus forecasts, too.
5. Counter-evidence ignored: The narrative formed out of this couple of economic releases was relatively simple: two forward looking indicators for the world’s two biggest economies came-out strong; growth in the global economy therefore could be stabilising. This general mode of thinking overnight inspired the so-called “risk-on” day; and proved cogent enough for other contradictory data to be ignored.
Because all-in-all, the balance of data released – the first lot in a mountain of data to be released this week – was probably fairly mixed. European PMI numbers and CPI figures were printed, and dramatically underwhelmed again; while US Retail Sales figures greatly undershot forecasts, conveying a contraction in consumption in the US last month.
6. Australia to follow the leader: Nevertheless, unsurprisingly, the ASX200 appears set to follow the risk-on theme this morning and jump in excess of 30 points at today’s open. It’s going be a massive day for Australian-econ-watchers; and may market participants too.
Quite reasonably, it could be argued that, on paper, it’s the biggest day of Australia’s financial-year. This afternoon we get the RBA’s monthly meeting, at which the central bank will most certainly be keeping interest rates on hold. Then tonight, in what could prove a pre-election manifesto from the Coalition Government, the annual Federal Budget is presented before Parliament, with the prevailing view being that it will be loaded with spending and other sweeteners to win-over members of the electorate.
7. Framing the day: As far as the RBA goes, the key point to watch for is whether, following the RBNZ last week, the central bank makes a decisive dovish pivot in its outlook for Australian interest rates. That is: it falls in line with market expectations and adopts a rate-cutting bias. When it comes to the Federal budget, it will be judged by what extent proposed spending measures will help stimulate a softening domestic economy.
The Australian economic outlook has remained reasonably strong lately is an improvement in the terms of trade, led by a fortuitous climb in commodity prices. Tonight’s budget will be judged by how the income from that phenomenon is redistributed to households, to reboot ailing domestic consumption.
8. Market watch:
SPI futures up 36 points or 0.6% to 6240 as of 7.20am AEDT
- AUD +0.3% to 71.14 US cents
- On Wall St: Dow +1.3% S&P 500 +1.2% Nasdaq +1.3%
- In New York, BHP +2.4% Rio +1.7% Atlassian +1.3%
- In Europe: Stoxx 50 +1% FTSE +0.5% CAC +1% DAX +1.4%
- Spot gold -0.2% to $US1289.94 an ounce near 1pm New York time
- Brent crude +1.8% to $US68.80 a barrel
- US oil +1.9% to $US61.30 a barrel
- Iron ore +2.2% to $US88.69 a tonne
- Dalian iron ore +1.2% to 646 yuan
- LME aluminium -0.7% to $US1900 a tonne
- LME copper +0.2% to $US6471 a tonne
- 2-year yield: US 2.33% Australia 1.47%
- 5-year yield: US 2.32% Australia 1.46%
- 10-year yield: US 2.50% Australia 1.80% Germany -0.03%
- US-Australia 10-year yield gap as of 7.25am AEDT: 70 basis points
This column was produced in commercial partnership
between The Sydney Morning Herald, The Age and IG