Traders are still judging that a reduction in trade-tensions, along with what appears to be accommodative monetary policy settings, ought to herald a solid turnaround in the global economy. That’s creating an urgency to chase momentum in stocks, with traders keen burnish their books into year end.
3. A much happy holiday period than last year’s: How traders are entering the holiday season in 2019 stands in stark contrast to how they were approaching in 2018. It was practically this day in history that following month’s of losses and increased volatility in markets – mostly due to the US Fed’s dogged-push to raise US interest rates – that US Treasury Secretary Steve Mnuchin called together the Working Group in Financial Markets to discuss the risks posed by plunging stock prices.
The market bottomed shortly after Christmas eve last year, mostly courtesy of a change in Fed policy setting, setting up the basis of what’s been the strongest annual return for US stocks this decade.
4. The year’s big takeaway: don’t fight the Fed: It may be the key lesson to take away from the year: don’t fight the Fed. Indeed, policy support from other central bankers helped too. However, 2019’s record-setting year for the S&P500, and even that of our own ASX200, has been underwritten by increasingly accommodative monetary policy for US Federal Reserve.
From interest rate cuts, to a re-expansion of its balance sheet, the Fed has gone tremendous lengths to support the stock market. Remember, after all, from a fundamental point of view, especially in US stock markets, it’s been a soft-year. Earning’s growth has been negative across the S&P500 in three consecutive quarters.
5. Friday’s US data affirms “goldilocks” view: Returning the focus to more short-term concerns, US economic data also delivered a shot in the arm to markets on Friday night. The US Dollar edged higher, modestly, with US Treasury yields, as US GDP figures printed on expectation, and a spate of inflation and consumption figures supported the notion that price pressures remain contained in the US economy, while consumer sentiment is still solid.
It’s contributing to the view that this is a “goldilocks” market right now: US economic growth is moderate, and good enough to sustain future earnings growth, while limited inflation risk will likely keep the US Fed on hold.
6. Almost fittingly, ASX won’t follow Wall Street’s strong lead: Despite US stock’s record highs on Friday night, the ASX200 is expected to open 26 points lower this morning, according to SPI Futures. The local stock market was victim to the “good news is bad news” dynamic last week, after the combination of better than expected local jobs data, and the growing optimism about the global economic outlook, saw bets of RBA interest rate cuts diminish, and risk taking curbed.
Though the ASX has put in a solid performance in 2019, on a relative basis, it’s been a slight underperformer, with the S&P500’s 28 per cent YTD gain shadowing its ~21 per cent climb.
7. Brexit risks re-emerge, driving the Pound down: In a touch of negative news on Friday, Brexit risks have returned somewhat to the forefront of traders minds. The Pound fell into the 1.29 handle at stages on Friday, marking a roughly 4 per cent fall for the currency last week, as UK Parliamentarians voted to approve an amended version of UK PM Boris Johnson’s withdrawal agreement that ensures the Brexit “transition-period” cannot be extend beyond its 2020 deadline.
It would seem, for the market, Brexit risks have wholly returned, and has cast a pall over the UK Conservative Party’s election victory of just less than a fortnight ago.
8. Market watch:
- AUD +0.2% to 69.00 US cents
- On Wall St: Dow +0.3% S&P 500 +0.5% Nasdaq +0.4%
- S&P 500 now up 28.5% year to date in 2019
- In New York: BHP -0.5% Rio +0.5% Atlassian +0.9%
- In Europe: Stoxx 50 +1% FTSE +0.1% CAC +0.8% DAX +0.8%
- Spot gold +0.2% to $US1481.64 /oz New York
- Brent crude -0.6% to $US66.14 a barrel
- US oil -1.2% to $US60.44 a barrel
- Iron ore -2.3% to $US91.63 a tonne
- Dalian iron ore +1.2% to 646.5 yuan
- LME aluminium +0.2% to $US1800 a tonne
- LME copper -0.6% to $US6175 a tonne
- 2-year yield: US 1.63% Australia 0.87%
- 5-year yield: US 1.73% Australia 0.92%
- 10-year yield: US 1.92% Australia 1.28% Germany -0.26%
- 10-year US/Australia yield gap: 64 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.