G20 Summit goes to plan: Financial market participants will be relieved by the outcome of the Trump-Xi meeting at the weekend’s G20. They’ve effectively received what they’d been expecting: no-deal of course, but a pledge to restart talks and not increase tariffs in the interim. As has been discussed by many, this is likely to be just the latest chapter of what’s going to be an epic tale for US-China relations. And it doesn’t, in the shorter-term, completely remove the headwinds faced by the global economy courtesy of the existing tariffs. But things aren’t getting any worst, for now, which means what touch of uncertainty for markets has been resolved.
What to expect (in general): Price action will be the ultimate judge of market sentiment in the next 24 hours – remembering, too, that market participants are staring down the barrel of another busy week. But the general dynamic might look like this: the ASX and equity markets up globally, with cyclicals and growth-stocks leading the charge. Bond yields will probably lift, as bets of interest rate cuts from global central banks are unwound. Industrial metals may climb, as will agricultural commodities, though oil will probably remain bound by its own drivers. And gold will dip, as the USD strengthens; the Yen will fall across the board, while the AUD will jump.
A little relief rally: Classic relief rally behaviour, to be fair. Probably quite predictable, all-in-all. And it continues a process that was, more-or-less, underway to cap-off last week’s trade. For one, stocks on Friday closed higher – though it must be said, the ASX200 missed-out on the action, due to some end of year re-positioning. But the S&P500 gained modestly, to sit 25 basis points below its record highs. While of the other “benchmark” indices: the FTSE100 floated higher, the DAX jumped over 1 per cent, with the Eurostoxx 50 gaining by slightly less than that figure. Asian stocks were the laggards, however – the majors were all down on Friday.
Rates and bonds: Interest rate markets demonstrated signs of both a modest flight to safety, as well as a small increase in rate-cut probabilities from global central bankers. Sovereign bonds were higher around the middle of the yield curve, on this basis: the yield on the US 10 Year Treasury note dipped to 1.75%, the yield on the equivalent German Bund dropped to -0.33 per cent, and the 10 Year Australian Government Bond yield returned to 1.33 per cent. Yields curves flattened too, on diminishing confidence about the outlook for global growth, coupled with a re-evaluation of the imminence of rate-cuts across the global economy.
FX markets: Currency markets on Friday behaved in a way more indicative of a confidence about what was to come out of the weekend’s G20 Summit. And this morning, as traders return to their desks, that view seems to have been validated. The Yen is down, trading back above 108, as is the Swiss Franc. The US Dollar is slightly higher across the G4 currency landscape, consolidating in the 113 handle against the Euro, and holding steady against the Pound. But growth tied currencies are the outperformers, though: the Kiwi is flat-ish currently, however the Loonie is up, and the AUD is trading at a 2-month high.
Global commodities: Commodity markets will be slower to get moving this morning. One expects they’ll benefit from the modest improvement in the global growth outlook. That means upside for industrial metals, like copper, and agricultural products, too, given their special place in US-China trade negotiations. Gold is likely to experience some fresh weakness owing to a stronger US Dollar and a probable lift in global bond yields. Oil confronts its own turbulence ahead: though the bulls will be happy about the weekend’s events, traders will turn their attention to this week’s key OPEC meeting, to judge the likely trajectory of prices.
Another big-week: Financial markets will enter a week now much more concerned with economic data. A dumping of PMI data comes from across the world – China is in focus first, with Caixin PMI released today. US Non-Farm Payrolls will mark the climax to the week on Friday; however, it will come a day after the US Fourth of July holiday, and trading is expected to be thin, consequently. And on the home front, the RBA meets tomorrow afternoon, and if the balance of opinion implied in market pricing is to be a guide, the RBA will cut interest rates to a new record low of 1.00%.
Written by Kyle Rodda-IG Australia