As always, one day’s trade a trend does not make; so, the truth will take some time to become clear. However, from what can be inferred from the limited evidence gathered overnight, risk-assets are not quite out of the woods just yet.
3. The S&P500 the centre of concern: It always is, really, so the coming statement is almost redundant: the barometer for global stocks will be the fortunes of the S&P500. It’s over 4 per cent off its highs as of last night’s session, marking the most meaningful pullback in that index since the beginning of this rally on December 24 last year.
Again, judging last night’s price action, the balance of risks in the short-term seem skewed to the downside, marginally. The S&P500 sold off into the close after failing to challenge support/resistance at its 50-day moving-average at 2855; and currently looks compelled to revert towards its 200-day moving-average near 2775.
4. Growth exposed assets still struggle Of course, time will tell whether this process of mean-reversion materializes, especially given how head-line sensitive this market is, at-the-moment. Maybe the best insight into yesterday’s trading is that traders should be “alert but not afraid” in the current market. This probably applies equally to stocks, as well as other growth-and-risk sensitive assets.
For one, commodities are demonstrating similar signs of distress at the prospect of weaker global growth due to the trade war. While growth-sensitive currencies, like the New Zealand Dollar and Canadian Dollar (amongst others), remain well off their highs and mired in downtrends, themselves.
5. Australian Dollar misses the bounce: One currency that didn’t experience much love last night was the Australian Dollar. Although it was a sea of green for riskier-currencies, and a sea-of-red for safe haven currencies, the A-Dollar barely budged during European and US trade. In fact, despite closing the session effectively unchanged, intraday price action saw the currency clock a fresh low of 0.6935.
There’s more than just short-term sentiment behind this, too. The Australian data docket is full in the next couple of days; and market participants appear wary of bidding higher the A-Dollar while the prospect of an imminent RBA rate cut is so possible.
6. Domestic and global factors drag on AUD: The combined effects of a potentially weaker Chinese economy, as well as relatively significant domestic risks, is keeping the outlook for the Australian economy, and therefore the Australian Dollar, a little dour.
As macro watchers wrangle with the potential consequences of the trade-war, local market participants will be keeping an eye on some Australian data today: the release of Wage Price Index figures this morning. Given the weak inflation environment in Australia, as well as the RBA’s continued instance its focus remains on the labour market, the wage growth numbers may well prove of high impact to market activity today, and moving forward.
7. Wage growth, rate cuts, and Aussie markets: As it stands, interest rate cuts from the RBA are considered a “when” and not “if” proposition. 40 to 45 basis points of cuts before year end from the RBA are priced into the market at the moment, as-a-result. While anything greater than this implied probability for cuts before year end is unlikely, a weak wage growth print could bring forward the expectation of when these cuts will occur. In such an event, the AUD/USD should continue to grind lower, in line with a continued fall in AGB yields to new-record lows, and the ASX200 will probably receive an intraday boost.
8. Market watch:
ASX futures up 25 points or 0.4% near 7am AEST
- AUD flat at 69.44 US cents
- On Wall St: Dow +0.8% S&P 500 +0.8% Nasdaq +1.1%
- In New York, BHP +1.2% Rio +2.3% Atlassian+2.5%
- In Europe: Stoxx 50 +1.3% FTSE 1.1% CAC 1.5% DAX +1%
- Spot gold -0.3% to $US1296.12 an ounce at 3.15pm New York time
- Brent crude +1.5% to $US71.28 a barrel
- US oil +1.2% to $US61.76 a barrel
- Iron ore -1.8% to $US94.34 a tonne
- Dalian iron ore -0.9% to $US646 yuan
- LME aluminium +2% to $US1845 a tonne
- LME copper +0.3% to $US6027 a tonne
- 2-year yields: US 2.20% Australia 1.27%
- 5-year yields: US 2.19% Australia 1.31%
- 10-year yields: US 2.41% Australia 1.70%
- Gap in 10-year yields as of 7am AEST: 71 basis points
This column was produced in commercial partnership
between The Sydney Morning Herald, The Age and IG