However, for market participants, there were some far more significant details in the fine-print to drive market action. Consumption was much weaker than expected, adding to concerns that the US consumer may be displaying some late-cycle behaviour; while the price-growth component revealed softening price pressures within the US economy.
3. S&P500 rallies as US Treasury yields and USD fall: It’s for this combination of reasons that US stocks rallied, and the US Dollar and US Treasury yields fell, throughout Friday’s North American session. The S&P500 put in a solid performance, on heightened activity, as the confluence of better than expected earnings, stronger than expected economic growth, lower bond yields, and a weaker currency bolstered equities.
In fact, the day’s positivity was so much so that the S&P500 managed to register another small milestone: it finished Friday’s trade once more by clocking a new record closing-high; and now sits 3 points shy of its all-time record intraday high of 2942.
4. A “just-right” bowl of porridge? To employ something of a cheesy (fairy-tale themed) cliché: overall, the US GDP data was perhaps the “goldilocks” print for which market participants had been hoping. Economic growth, on the aggregate, is solid, while little justification exists for the US Fed to reinvite “rate-hike” considerations into their policy-mix.
The favourable financial conditions that has returned the US stock market to new highs will remain; while there appears enough steam in the US economic engine to sustain earning’s growth, for now. And it’s fitting this view is consolidating now: its mettle will be tested by tonight’s US PCE inflation report and Wednesday’s Fed meeting.
5. Traders still pricing in a cutting Fed: As it is the world-over: traders are seeing limited risk of inflation, and therefore interest rate hikes, in the US economy. Following Friday’s GDP report, US 2 Year Breakevens have continued to fall – trading now in the realms below 1.8 per cent. Incidentally, it is that figure that the last PCE release revealed US price growth to be.
Expectations have built that tonight’s set of numbers will reveal a fall in inflation once again. And it’s clearly manifested in the implied probabilities of US rate cuts: interest rate traders have factored in 22 basis points of cuts from the Fed by the end of 2019.
6. US Dollar falls; AUD rallies: Much like the action in stocks and bonds, currency markets have traded in line with the growth-positive, low rate-hike-risk theme. Of course, the most conspicuous manifestation of this has been in the US Dollar, which depreciated markedly on Friday evening. The ultimate beneficiaries of the weaker greenback were growth-tied currencies — meaning our Australian Dollar has bounced off its lows.
On balance, it’s difficult to imagine the A-Dollar regaining too much ground while markets effectively price in two RBA cuts this year. However, data permitting, a modest foray back through the 0.7000 handle can’t be precluded right now.
7. ASX200 to open today’s trade flat: For all of Wall Street’s heightened optimism, somewhat unlike last week, Australian stocks will forego its bullishness at the outset this morning. SPI Futures are indicating a 2 point drop this morning, backing up a similarly flat Friday.
The session on Friday was largely a benign extension of Wednesday’s trade: interest rate sensitive stocks, such as those in the utilities and real estate sectors, found most buying activity. However, perhaps due to weakness in Chinese markets, coupled with a fall in commodity prices, the materials and energy sectors weighed on the index, resulting in a tepid gain of less than 0.1 per cent on Friday.
8. Market watch:
SPI futures were down 2 points to 6366 at 5.50am AEDT on Monday.
- AUD +0.3% to 70.38 US cents
- On Wall St: Dow +0.3% S&P 500 +0.5% Nasdaq +0.3%
- In New York, BHP -0.1% Rio -0.1% Atlassian +2.1%
- In Europe: Stoxx 50 +0.2% FTSE -0.1% DAX +0.3% CAC +0.2%
- Spot gold +0.7% to $US1286.25 an ounce
- Brent crude flat at $US72.15 a barrel
- US oil -3.6% to $US62.85 a barrel
- Iron ore +0.1% to $US93.58 a tonne
- Dalian iron ore +0.6% to 624 yuan
- LME aluminium -1% to $US1837 a tonne
- LME copper +0.6% to $US6400 a tonne
- 2-year yield: US 2.28% Australia 1.33%
- 5-year yield: US 2.29% Australia 1.39%
- 10-year yield: US 2.50% Australia 1.77% Germany -0.02%
- US-Australia 10-year yield gap: 73 basis points
This column was produced in commercial partnership
between The Sydney Morning Herald, The Age and IG