1. Are trade talks still progressing? Market volatility eased last night, after US President Donald Trump and his administration talked up trade talk progress. That saw an appetite for risk being popped back on the table during overnight trade, and it’s setting up the ASX for a rally this morning. Brexit developments also stoked the market’s animal spirits as polling showed the Conservative Party extending its lead in the British election race. The Bank of Canada met and delivered a pretty upbeat, hawkish decision to hold rates steady. Oil prices climbed after the US Crude Oil inventories report, and ahead of this week’s OPEC meeting. In the Australian trading session ahead, all eyes will be on local retail sales data.
2. Sentiment flips and volatility drops. Sentiment flipped last night as the tone of trade war news changed once again. Reports flowed from Bloomberg in early European trade, citing sources close to the talks that trade negotiations continue to progress well, and that a deal is still possible before levies are scheduled to be hiked again in 2020. The reports were somewhat supported by US President Donald Trump last night, who in a press conference stated that trade talks are going “very well”. Fear turned to hope, at least on the surface of things, with the investor fear gauge VIX falling back to the 14 mark, and risk assets generally climbing.
3. Stocks recover ground, ASX ought to jump: Other sharemarkets also recovered overnight, setting the ASX200 up for a robust 50-point rally at today’s open. The question for traders this week has been whether the sell-off in equity markets was simply a pullback in prices, driven by a shift in sentiment, or whether a bigger turnaround was in play, based on deep-rooted concerns about economic fundamentals. The balance of opinion has shifted to the latter. That is: with valuations having become rich, and sentiment clearly imbalanced, the market needed this little shake-out. Of course, everything still hinges on the US and China remaining friendly. But for now, traders are feeling more confident that everything is still okay.
4. Brexit news also supports risk appetite: So markets wait and see, and keep watch on that December 15 “deadline” when new tariffs are set to kick in. Outside of the US-China trade talks, markets were given a small reason to be cheerful as the most recent British election polling showed the Conservative Party extending its lead. The poll has boosted hopes that the Tories will win a majority government at next week’s election, and with it, a mandate to pass their Brexit withdrawal-agreement by the end of January. The news, coupled with a weaker US dollar, propelled the British pound higher last night, trading into the 1.30 as of this morning – and to levels not seen since May 2017.
5. Bank of Canada talks up global growth outlook: Another key event drove volatility in currencies overnight: the Bank of Canada met and delivered to the market what’s being called a “hawkish hold”. The Canadian Dollar was sent surging after the decision, leading the gains for G10 currencies last night. The BoC’s decision had broader implications for markets, though. The central bank was very upbeat in its assessment of the global economic outlook, stating it sees the global economy “stabilising”. It adds to the list of central bankers talking up improvements in global growth conditions, implying that 2019’s synchronised reduction of interest rates may have reached its end point.
6. US oil spikes ahead of OPEC meeting: The Canadian Dollar had another reason to rally yesterday. Oil prices spiked after US crude oil inventories data showed a much bigger than expected drawdown in crude inventories last week. Inventories fell by 4.9 million barrels, versus a forecast 1.6 million barrel fall, driving the oil price up roughly 4 per cent in North American trade. The rally sets up a crucial couple of days for oil markets. OPEC kicks off its meeting in Austria today. Confusion still reigns as to whether the cartel will cut production or not to account for a global weakening of oil demand. If it does, then further upside for oil prices is all but assured.
7. Retail sales data tops local calendar after Wednesday’s GDP: Local interest turns to retail sales data this morning. It follows yesterday’s GDP print, which judging by the Aussie dollar’s dip after its release missed market expectations. The key point: though printing at 1.7 per cent year-over-year, as expected, the quarterly number missed forecasts, at 0.4 per cent. That showed a decline in growth from the previous quarter, and cast doubt of the notion put forward by the RBA that the economy is at a “gentle turning point”. Odds of a rate cut from the RBA next year have been boosted, with the market now seeing a 60 per cent chance of a February cut.
8. Market watch:
ASX futures up 58 points or 0.9 per cent at 6669 at about 7.15am AEDT
- AUD +0.1% to 68.51 US cents
- On Wall St: Dow +0.5%; S&P 500 +0.6%; Nasdaq +0.5%
- In New York: BHP +1.3% Rio +0.7% Atlassian +0.4%
- In Europe: Stoxx 50 +1.4% FTSE +0.4% CAC +1.2% DAX +1.3%
- Nikkei 225 futures +1%
- Spot gold -0.3% to $US1473.81/oz at 2.02pm New York
- Brent crude +3.8% to $US63.15 a barrel
- US oil +4.2% to $US58.45 a barrel
- Iron ore +08% to $US89.06 a tonne
- Dalian iron ore +1.6% to 624 yuan
- LME aluminium -0.5% to $US1758 a tonne
- LME copper +1.2% to $US5886 a tonne
- 2-year yield: US 1.58% Australia 0.70%
- 5-year yield: US 1.61% Australia 0.71%
- 10-year yield: US 1.78% Australia 1.06% Germany -0.32%
- 10-year US/Australia yield gap near 6am AEDT: 72 basis points
This column was produced in commercial partnership between The Sydney Morning Herald, The Age and IG
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Information is of a general nature only.