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APAC brief 23 April



Traders have plenty to catch up on: As one might expect after (effectively) four days-off, there’s plenty of macro-economic news for Australian market participants to catch-up on following the Easter-holiday break. Chinese and Japanese markets have traded without interruption; while the US jumped back in to action overnight. And although price action won’t be the cause of any conniptions across trading floors this morning, there’s still enough information there to inspire a few novel ideas in the minds of traders. It will be this digesting of old news that will be the most significant determinant of market activity this morning: the corporate and economic calendars are rather bare to begin the week.

Stocks tread water as US earnings news pauses: SPI Futures are pointing to a very modest jump for the ASX200 this morning of 5-points, after a more-or-less flat session on Wall Street. The S&P500 added a paltry 2-points, or-so, during North American trade, as the steady flow of corporate earnings that began last week was suspended for the holiday-break. The relative lull in price action speaks-of a market primarily preoccupied with company earnings – despite ample market moving news impacting individuals market sectors. As has been said before: traders are searching for validation from US corporates that earnings, along with global growth, can be expected to turnaround. 

Data supports US economic outlook: To an extent, such a view is being priced-in marginally, at least as it applies to the US economic growth. US GDP figures will punctuate the end of this week’s trade; but in the lead-up, rates and bond markets have been slightly upgrading their outlook for US growth. Much of this centred on the US Retail Sales print last Thursday night, which surprised considerably to the upside, and alleviated some of the concerns relating to the state of the American consumer. After March and early April’s rally, US Treasuries are retracing their gains, as traders moderate their bets of cuts from the US Federal Reserve.

Bond yields lift on hopes for global growth: Currently, the 10 Year US Treasury note is yielding just shy of 2.59 per cent – up significantly from the March low of 2.36 per cent. Moreover, the implied probabilities of a rate-cut from the US Fed before the end of 2019 has fallen from an almost 80 per cent chance, to a 50-50 proposition as it currently stands. The factors driving yields in US Treasuries haven’t quite translated equally into other safe-haven government bonds: though higher, weak European manufacturing PMI numbers last week have weighed on German Bunds, while soft UK inflation numbers last week have kept UK Gilt yields in check.

US Dollar maintains a bullish bias: Naturally, the outperformance of US Treasury yields relative to government debt of similar quality has lifted the US Dollar. Albeit still its end of February highs, the US Dollar Index tested 97.50 during Friday night’s trade, as traders backed out of the Euro and Pound. The combination of a strong US Dollar and generally higher global bond yields has legged gold prices, which broke and held below significant support/resistance at $1280 per ounce. Of course, the stronger greenback hasn’t spared our Australian Dollar, with the local unit abandoning its “growth-proxy” and iron-ore price led rally, to trade back in-line with yield differentials.


Chinese policymakers to temper stimulus: As far as the Aussie-Dollar, and other global-growth exposed assets goes, upside momentum has been dulled over the weekend, on decreased expectations of future Chinese monetary stimulus. The dynamic can be witnessed in Chinese equities, too, which shed over 2.24 per cent yesterday. Illustrating well the modern central bankers’ essential-dilemma: Chinese stocks pulled-back, and their bond yields climbed, on news that China’s policymakers will likely temper the extent of their stimulus efforts in response to improvement’s macro-economic fundamentals. The tight-rope walk raises the possibility once more of volatility in China’s markets, as policymakers balance the need for short-term stimulus, with necessary long-term structural reforms.

Oil prices rally on Iran sanctions: The final development worth being wary of from the long weekend’s market news-flow was action in oil markets. Prices have rallied in response to news that the US would be ending waivers to other oil importing nations purchasing Iranian oil. Already in a steady upward trajectory courtesy of managed production cuts from OPEC, the price of Brent Crude has spiked 3 per cent, lifting stocks in the US energy sector overnight. Of greater import, so to speak, to market participants is the impact oil’s rally may have on global interest rates, as traders ponder the potential impacts of higher energy prices on future inflation.


Written by Kyle Rodda - IG Australia


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