G20 outcome bolsters sentiment: Market activity was defined by a demonstrable lift in risk appetite yesterday. Stock markets rallied, especially in China, and the S&P500 touched new all-time highs. The Yen dipped, as did the Swiss Franc. The stronger Greenback combined with the lift in global bond yields knocked gold prices down below the $US1400-mark. And oil rallied – boosted, too, by the prospect of coordinated supply controls from OPEC-members at their meeting this week. While the positive growth sentiment, combined with news of falling export volumes here in Australian, drove the price of iron ore over 4 per cent higher, and to another new high.

Fundamental questions return to fore: The euphoria did fade throughout the day, it must be said. A combination of global PMI releases seemed to underly the dynamic: investors are coming back to fundamentals, again, meaning market-action was a lot less “one-way”. Momentum shifted on the release of European PMI data during Europe’s session, which again showed a contractionary print, and increased fears of a slow-down in the bloc’s economy. It preceded a much better than expected US ISM Manufacturing figure, which helped support a big rally in the US Dollar and a sell-off in the Euro, as markets priced out modestly the need for cuts from the US Fed.

ASX rallies, but fails to test highs: The ASX made the most of the positive sentiment; however, the price action for the index can still be aptly described as one of consolidation. Though rallying around half-a-per-cent yesterday, the ASX200 proved reluctant to truly challenge its recent 11-year highs, as market momentum grinds to the downside, and the daily-RSI continues to pull away from overbought levels. Market breadth was solid yesterday at 73 per cent, so the gains on the market were well spread. But the heavy lifters failed to fire, with the relative light-weight Real Estate sector leading the gains, after another weekend of better-than-expected auction results in Melbourne and Sydney.

Chinese data disappoints: Financial markets did receive a small dose of reality during Asian trade yesterday. Caixin Manufacturing PMI data was released, backing up the day prior’s official numbers, and the results weren’t positive. The figure showed a “contractionary” print of 49.4, versus a forecast estimate of 50.1. It’s possibly a reminder that though the trade-war is certainly a compounding factor – and perhaps could prove the proverbial straw that breaks the camel’s back, eventually – China’s growth slow-down does seem quite cyclical in nature, as mounting concerns about financial-stability, and the slow process of modernization, drags on activity in the Middle Kingdom’s economy.

Chinese stocks climb, as Yuan pulls back: The consequences to the Chinese data were tangible. As it so often is, bad-news is good-news for equities: the clear deterioration in business sentiment and economic activity boosted the chances of monetary and fiscal stimulus from Chinese policy makers, which gave an extra boost to China’s stock market. The currency landscape was more illustrative of economic fundamentals, however. Having touched support at 6.82 in early Asian trade Monday, the USD/CNH recovered some of its losses on the news. While the Australian Dollar unwound its G20 related gains, to return to the 0.6900 handle.

RBA to take centre stage: The Australian Dollar will come into focus today, again. The RBA meets this afternoon, and if surveyed economists, along with the balance of opinion implied in market pricing is any guide, ought to cut interest rates to a new historic low of 1.00 per cent. For financial markets, it’s a matter of when, and not if, the RBA cuts rates again. They practically told us so in the minutes of their last meeting, stating: “members agreed that it was more likely than not that a further easing in monetary policy would be appropriate in the period ahead”.

Cut-or-not, markets to move: As it currently stands, the uncertainty in the market around today’s RBA meeting is, of course, whether they do cut rates today, or not. This month’s meeting isn’t as cut-and-dry as the June meeting, whereby a full cut was already baked into the market prior to decision itself. Hence, by necessity, markets have to move around this event, somewhat. That is: they cut, the AUD falls, and the ASX edges higher, as the remaining 5 basis-points of cuts, or so, are priced-in to the market; or they don’t, and the reverse proves true, as traders unwind the 20 basis-points already priced-in.

Written by Kyle Rodda-IG Australia