Bond yields climbed across the world last night, revealing that a pricing in of improved global economic conditions is still happening. However, that’s not translating into any exuberant, risk-taking behaviour in stocks markets. It might be that after a harrowing 2019, traders are happy just cruising to its end.
3. Economic news plentiful, but of little consequence: The economic calendar was dense, but low impact. The most reported news of any fundamental import was German Ifo Business Climate data, and that showed a better than expected resulted, raising hopes for a looming recovery in Germany’s economy. US Crude Oil Inventory data was released, and showed a smaller than expected drawdown, boosting oil prices somewhat.
The Canadian Dollar climbed, after some solid enough inflation data lowered the odds of a Bank of Canada rate cut. The UK welcomed the release of CPI data, and though it printed quite a soft 1.5 per cent, it still managed to clear economist’s estimates.
4. Sterling keeps falling as new Brexit deadline firms: The inflation data did little for the Pound, however. It was perhaps one of the more volatile markets overnight, as traders temper their optimism about the potential path forward for Brexit, and by extension, the UK economy. The prospect for a hard Brexit come the end of 2020 still appears uncomfortably high, and that realization has sent the Sterling back into the 1.30 handle in the past 24 hours.
Attention will remain on the UK economy in the day ahead. The Bank of England meet, and, though aren’t expected to move rates, will be watched closely for signs the central bank intends to cut in 2020.
5. Impeachment trial garners attention, but no reaction: The Trump impeachment proceedings have captured headlines, but its market impacts have been limited. It’s not had any material impact on the market yet. But the Trump impeachment trial is at least where trader’s are directing the lion’s share of attention.
For market participants, although the impeachment trial signals considerable political instability in the US, its financial market implications have been approached with barely a shrug. Few in the markets think that there is any real chance that an impeachment vote will pass through the Republican controlled Senate. Hence, despite what’s clearly chaos in the US political system, for better or worse, financial markets remain shielded, maybe ironically, from the consequences of the impeachment trial by the hyper-partisanship in US Congress.
6. ASX200 set to drop at the open: Wall Street’s so-so day is setting up the ASX200 for a bit of a dip at market open this morning. It’ll back up a day that was also quite so-so for the local stock market, which shied from challenging its own record highs yesterday.
A handful of factors were behind that, but a conspicuous reason for the markets lukewarm performance was another dip in bank shares, as investors price in further regulatory hurdles for the sector. It’s likely to be a perennial problem for the market in the year ahead: an ASX200 that’s held back, relatively speaking, by the several, strong headwinds facing the market’s financial sector.
7. Jobs numbers highlight local trade: The day ahead will be rather significant for the local market. The latest jobs data is released, and is expected to reveal that the Australian economy added 14.5k jobs last month, and that the unemployment rate in November remained steady at 5.3 per cent.
Of course, it’s been growing slack in the labour market that’s driven the RBA to cut interest rates three times this year. Having come off the back of a month in October whereby the Australian economy shed 19k jobs, another soft set of numbers today ought to go a long way in establishing whether the RBA cuts again at its next meeting in February.
8. Market watch:
ASX futures down 18 points or 0.3% to 6840 at 5.50am AEDT
- AUD +0.1% to 68.55 US cents
- On Wall St near 1pm: Dow flat S&P 500 +0.1% Nasdaq +0.2%
- In New York: BHP -1.1% Rio -0.3% Atlassian +0.5%
- In Europe: Stoxx 50 -0.2% FTSE +0.2% CAC -0.2% DAX -0.5%
- Spot gold -0.1% to $US1474.76 /oz near 1pm New York
- Brent crude +0.2% to $US66.24 a barrel
- US oil +0.2% to $US61.06 a barrel
- Iron ore -0.9% to $US93.20 a tonne
- Dalian iron ore -0.1% to 635.5 yuan
- LME aluminium +0.7% to $US1777 a tonne
- LME copper bid down 0.5% to $US6172 a tonne
- 2-year yield: US 1.64% Australia 0.78%
- 5-year yield: US 1.74% Australia 0.81%
- 10-year yield: US 1.93% Australia 1.20% Germany -0.25%
- 10-year US/Australia yield gap near 5am AEDT: 73 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.