A (shallow) sea of red: There is a lot of red across the board for global equity indices to start the week, but the extent and strength of the downside swings have so far proven quite benign. The theme dominating markets yesterday and overnight was that of slower global growth. It kicked-off more-or-less following the release of some abysmal Chinese trade figures, that added further concern that the Chinese, and therefore global economy is heading for a significant slow-down. The data sparked a generally bearish mood in global markets, prompting a bid-higher in traditional safe-haven assets. At time of writing, the JPY is up along with gold, equities are down, copper is off, commodity-currencies like the A-Dollar has dipped, while bond prices are relatively steady.
A still quiet day: The VIX index jumped at the start of day’s session but is paring its gains. It remains below the 20 level still – far from its lofty December heights. Concerns about slower global growth is the theme as mentioned, however it’s not rattling trader nerves right now as much as it might have in the recent past. Activity has also been thin. Volumes in every major share market were markedly below average. The swings we have seen in prices too are very modest compared to what one might expect in a market still inhibited (somewhat) by thin holiday liquidity. Global growth is a major headwind, markets are sure of that. However, the behaviour of traders could just as readily be attributed positioning ahead of several weeks of event risk and possible uncertainty.
Asia pullback: This was especially true in Asia, where Japanese markets were closed for a bank holiday. Looking beyond our local borders for now, Chinese and Hong Kong markets were of primary concern for market participants yesterday. The CSI300 looks like its abandoned its bounce, failing to break through 3100 again. The Hang Seng is trading in a very choppy way and shed 1.38 per cent during trade. Once more: this did occur on rather low volumes. The curious point of price action manifested the USD/CNH, which perhaps owing to the weaker greenback, managed to maintain its rally, to end trade at 6.76. Nevertheless, it was a lacklustre and bearish day in Asian markets, that subsequently flowed into a similar day across Europe.
Start of reporting season: For US markets, reporting season tops the list of priorities for traders. It commenced today, with the first week of the season dominated by the financials sector. Citigroup was the first cab off the rank and though it posted lower revenues, it's aggressive cost cutting proved enough to lift earnings for the last quarter. It's a supportive signal for macro-watchers, Citigroup's solid result, given the overall downtrend in bank stocks for the better part of 18 months. The sector is considered often a canary in the coal mine for the broader economy. It sets the tone for the other major financial institutions to report this week, which though unlikely to shift overall market sentiment by way of virtue of their results, will provide handy clues about the economic outlook moving forward.
Light-data, Brexit the event-risk: The sentiment generated from US reporting season and the North American session will probably colour Asian trade again today. The economic calendar is very light-on meaningful data, so traders’ leads, in the absence of surprise events, will be taken from Wall Street's activity. In terms of surprises, whispers coming from Westminster Abby could be a possible cause. The "meaningful vote" on UK Prime Minister May's Brexit-deal will transpire in the next 24-48 hours. Betting markets are overwhelmingly pointing to a failure for the bill to pass through the House of Commons. All the anticipation already has traders jumping at shadows: rumours that the pro-Brexit European Research Group would support Prime Minister May's exit-Bill led to a spike in the Pound, before it retraced its gain when that story proved more fluff than something truly substantial.
ASX200: Despite Wall Street’s weak-lead, SPI Futures are pointing to a gain of between 5 to 10 points this morning. For the first time in several weeks, the ASX’s trade was dictated by a game of catch-up to news from US markets. It made the session frankly rather dull – although for many surely that was welcomed. There was another challenge and failure of 5800 resistance in the early stages of the session. The bulls quickly gave up the ghost as the broader region’s traders came on line, resulting in a sluggish day for the ASX200. A silver lining for the bulls is that once again, Australian stocks managed to stage a meaningful rally into the close – a sign oftentimes that the “smart” money sees value in the market.
Support for the ASX: Even still, like Wall Street indices, the market’s recent rally is looking tired. Upside momentum has truly slowed, and the RSI is flattening out at a stable level around 60. Markets tend to test lows to confirm that whatever sell-off preceded its current level is truly over. On that basis, and given that US earnings, growth-data and Brexit are raising the odds of a significant risk-off event in the short-term, the ASX200 may look to test several possible levels to the downside. 5700 will hold psychological significance, before 5630 opens-up as previous support/resistance. This is followed by 5550, at which the market bounced off twice, with the final and most relevant support level at 5410 – a point that represents the make-or-break between a true recovery or further falls.
Written by Kyle Rodda - IG Australia