Last week: At the end of a week that may have been best described as nervous and jittery, markets closed trade in a relatively subdued fashion. The news that the United States and China may re-enter trade negotiations provided the basis for the stability, but the reactions to that news were hardly ecstatic. This is justifiably so, considering investors have become very accustomed to overreacting to news that turns-out to be little more than fluff. The crisis in Turkey has temporarily settled, though could easily flare again at a moment’s notice, as investors prepare for a week with a smattering of key data events, but that also includes the likely implementation of a new round of tariffs from the US and China.
Wall Street: Wall Street reclaimed some of the territory it lost throughout the trading week, led by the Dow Jones, which added a solid 0.43 per cent. This came after a mediocre day in European markets, which were generally lower for the session. Amid trade wars and emerging market chaos, many analysts have been heard imploring clients to focus on strong corporate profits to guide investment decisions. Price action in US indices supports this notion, continuing their uptrend despite the risks. The S&P500 has inched away from clocking new all-time highs, while cooling enthusiasm for US tech stocks weighed on the NASDAQ; however, the Dow Jones is coming to close to approaching levels not seen since February this year, indicating a burst higher could be mounting.
ASX: SPI futures are currently pointing to a solid open for the ASX200, a remarkably upbeat start to the week considering investors are coming off another day in which the index clocked new decade long highs. There was a dearth of news for local investors to trade off on Friday, the effects of which could be observed in the thinner trading conditions and flat price action for some segments of the market. The element that tipped the ASX into a net positive position was the relief that the US and China would restart trade talks, and was in effect was responsible for the 0.2 per cent gain for the day. If Aussie shares can keep momentum and trade higher this morning, keep watch for 6360 as perhaps being a noteworthy resistance level.
Earnings season: It will be investor’s reactions to reporting season that will probably prove the ultimate arbiter of the Australian equity market’s strength or weakness, following a day on Friday that lacked heavy hitting company announcements. Activity will be far higher today and the rest of the week, as we enter what is probably the densest part of reporting season. In the day ahead, Woolworths jumps out as the most significant earnings report, with that company expected to show modest Net Income and Earnings Per Share growth over the last 12 months – a result which is estimated to translate into a dividend of 0.93c.
Woolworth’s share price has performed reasonably well over the past year, climbing just over 9 percent, although the momentum has shifted in the last 2 months: look for price action up to $31.30 if the today’s results surprise significantly to the upside.
Greenback: The USD has pulled back over the last few days, following a week during which the greenback smashed its way higher. The search for solid and secure yield in a safe-haven asset has diminished, resulting in funds flowing into other asset classes as risk appetite returns. The AUD/USD has possibly been one of – if not – the greatest beneficiaries of the reduced Dollar bullishness, managing to climb back above the 0.7300 handle — and crucially through resistance 0.7310. The EUR and GBP have also come under a touch less pressure, while the Yen has maintained its strength across the board. Despite the dip, the trend will remain on the upside for the USD for the foreseeable future, particularly if global financial stability remains a concern: look for 96.70 on the US Dollar Index as the next level of potential resistance.
US Treasuries: As sentiment and volatility normalises, it may pay to keep privy of US bond markets this week. The action last week resulted in markedly lower US Treasury yields, and a much flatter bond curve. The yield on 6-month Treasuries fell by 8 points, while the spread between the 2-year and 10-year yields is currently a narrow 25 points – with the yield on the latter of the two assets falling to 2.86 per last week. Given this price action, it may be that not only are investors questioning the US Fed’s willingness to hike rates too steeply in a higher risk environment, but also, that they possess greater anxiety about longer term economic growth prospects, both in the US and abroad.
This week: A look to the week ahead provides the best foundations of achieving some equanimity before trading really takes-off. In global news, the next round of US and Chinese tariffs is arguably the most significant event, although little reaction is expected in markets given the event is seemingly priced in. Central bankers have their annual retreat in Jackson Hole, Wyoming to mull over monetary policy, with the interest there in the longer-term picture of monetary policy globally. This will provide the backdrop for the US Federal Reserve’s Monetary Policy Minutes release, along with the release of the RBA’s own minutes from their recent meeting this week, too.
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