ASX set for positive start to week

3. Global PMI’s generally surprise to the upside: The more essential issue for traders on Friday was a raft of PMI data released across the globe. And all-in-all, the combined result built-upon the view that business activity in the global economy is improving.

While clearly not out of the woods, Japanese, European and US manufacturing PMI data exceeded economist forecasts, sparking hope that the worst of the recent slowdown in the world’s economy has bottomed. It wasn’t all bright news, it must be said. Services PMI numbers were, on balance, a little weak, suggesting that 6-12 months of weak manufacturing activity is now demonstrating its effects on the global services sector.

4. UK PMI the weakest of the bunch: There was something of an outlier to the positive PMI story on Friday. And that was the UK’s version of the data. The Pound took a little spill, after it was revealed that both services and manufacturing PMI contracted by more than forecast last month. Another little reality seemed to confront traders as-a-result of the poor data.

For all the hope engendered by the prospect of a Conservative Party victory in next month’s election, and therefore a “smooth-Brexit”, the uncertainty engendered by years of political gridlock in the UK is still stifling economic activity. The UK growth is probably a little on the soft side, calling for eventual BOE stimulus.

5. ECB President Lagarde outlines her vision: Most of the attention was directed towards Europe’s economy on Friday, and perhaps the event eliciting greatest curiosity was ECB President Christine Lagarde’s speech. Only really at the very start of her tenure, markets are keen to ascertain her vision for the ECB, and the role it plays in European economic policy.

In a way, reciting from the Handbook for Central Bank Speak (v. 2019), President Lagarde talked-up the opportunities for economic growth in the future, stated her willingness to throw full policy support behind the European economy, and expressed her desire for greater fiscal stimulus from governments within the Eurozone.

6. ASX to open slightly higher, still weighed by banks: Given the tepid lead handed to it, the ASX200 is expected to open a solid, but rather modest, 12 points higher this morning, according to SPI Futures. It backs up was a broad-based, albeit low-activity rally, for the benchmark index on Friday.

The day’s trade was practically all about traders putting risk-on the table, after the day prior’s false alarm regarding (what appeared like) another deterioration in US-China relations. The only laggard on the market proved the financial sector, which remains a drag on the market, as investors continue to digest Westpac’s Anti-Money Laundering breaches, and what that may imply for the broader banking sector.

7. The week ahead to be about politics, RBA next week: The week ahead is a little light-on, data-wise. It often is in the final week of the month. Geopolitical risks will be the biggest news in the market, with the US-China trade-war the top priority, but Brexit and the Hong Kong protests of considerable import.

Locally, the foundations for next week’s RBA meeting will be set, as traders welcome a speech delivered by RBA Governor Philip Lowe, as well as a whole bunch of GDP “partials”. Choppiness in trading conditions could emerge too, as liquidity quite likely thins-out, as it often does, ahead of the US Thanksgiving holiday on Thursday.

8. Market watch:

ASX futures up 12 points or 0.2% to 6732

On Friday the S&P/ASX 200 rose 36.9 points or 0.6% to 6709.80

  • AUD flat at 67.86 US cents
  • On Wall St: Dow +0.4% S&P 500 +0.2% Nasdaq +0.2%
  • In New York: BHP +1% Rio +1% Atlassian flat
  • In Europe: Stoxx 50 +0.2% FTSE +1.2% CAC +0.2% DAX +0.2%
  • Spot gold -0.2% to $US1461.93 an ounce in New York
  • Brent crude -0.9% to $US63.39 a barrel
  • US oil -1.4% to $US57.77 a barrel
  • Iron ore +1.6% to $US88.08 a tonne
  • Dalian iron ore +1.3% to 652.5 yuan
  • LME aluminium +0.3% to $US1739 a tonne
  • LME copper +0.5% to $US5855 a tonne
  • 2-year yield: US 1.63% Australia 0.76%
  • 5-year yield: US 1.62% Australia 0.78%
  • 10-year yield: US 1.77% Australia 1.10% Germany -0.36%
  • 10-year US/Australia yield gap: 67 basis points

This column was produced in commercial partnership between The Sydney Morning Herald, The Age and IG

Listen to IG’s podcast Chatting Markets here

Information is of a general nature only.


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