Global equities: Global share-markets experienced a lift overnight as European and US investors jumped online to begin the week. The overall mentality now can be characterized as one of cautious optimism ahead of low-level US-China trade talks, mixed with a touch of relief that crises in Turkey and other emerging markets are currently quarantined. Chinese markets picked up steam in late trade because of this point of view, while the Dow Jones represented this broad attitude during the North American session – adding 0.35 per cent, largely thanks to a pick-up in the industrial sector. The best performer of the major indices though was the DAX, which managed to turn around the weakness reflected in futures markets earlier in the day, to clock gains just shy of 1 per cent at that market’s close.
ASX: The general positivity during overnight trade establishes a positive lead for the ASX200, with SPI futures presently indicating a 3-point jump at the open. Trade was very subdued in Australian shares for the best part of the day yesterday, as traders stepped back from the market after the ASX’s early morning leap proved fleeting. It was likely a profit-taking opportunity for punters, who lacked the impetus for further buying following a handful of soft company reports prior to market open. Coming into the day a level to note was around 6360, which signified the extension of an upward sloping line of resistance, dating back to 2016. True to form, the ASX high for the day was just below this mark, perhaps providing insight into where the next major barrier exists for the index.
Reporting Season: Carrying-over from what was generally considered to be better than expected results from the reporting company’s last week, hope sprang leading into yesterday’s trade that the outperformance from Australian corporates would continue. In isolation, the earnings figures from the company’s reporting yesterday were relatively underwhelming, with none of the handful of major reporting company’s exceeding estimates. Woolworths was the headliner yesterday, and despite reporting respectable profit growth and a bonus dividend, the company’s stock fell by over 1 per cent after sales growth and net income printed weaker than expected. The day ahead will see interest turned to results out of BHP and Seven West Media this morning.
ASX and Trade Wars: One interesting take away from the day’s reporting might be the small cracks appearing in some segments of corporate Australia because of the developing global trade war. For one, Fortescue Metals reported yesterday and disclosed lower revenues and a forecast period of slower growth as demand for iron ore falls. But perhaps the more interesting trade-war related takeaway came from Ansell’s earnings call, which revealed that along with softer earnings in the last year, the company expects to grow at a slower rate than previously expected due to the higher input costs related to the trade-war. The Ansell example shows how insidious the impacts of higher costs associated with protectionism can be, and how acutely these impacts can be felt by investors.
Trump’s cherished Dollar: The US Dollar took a tumble last night, ending in effect its week long bullish tear. The fall came on the back of a news release that US President Donald Trump (has once again) openly chastised US Federal Reserve Chair Jerome Powell – this time while delivering a speech at a charity event. The US President stated he thought Chairperson Powell would be a “cheap money” Fed-Chair and lamented the increase in US interest rates. The US Dollar Index fell 0.2 per cent as the news trickled through the newswires, pushing the EUR/USD back towards the 1.15-mark and the AUD/USD through resistance at 0.7310 to trade 0.7340 when last looked. The US Dollar is now sitting around 40-points above quite a significant support level at 95.40, the collapse of which would take the greenback back to the levels it was trading at prior to the Turkish Lira crisis.
RBA and local interest rates: The day ahead will be one focused on RBA policy and Australian interest rates, as traders prepare for a speech to be delivered by RBA Governor Philip Lowe early this morning, followed by the release of the RBA’s Monetary Policy Minutes at 11.30AM. While broader macroeconomic insights will be analysed closely by market participants, the content out of both today’s events will likely prove solely academic. Subjects like trade wars, inflation, private debt and the property market will capture interest, but what can be inferred from the discussion on these topics probably won’t move markets. The RBA has fallen in line with interest rate markets, particularly in recent months, strongly implying that Australian rates will not be shifting until early 2020. As such, what information received today out of Governor Lowe and the RBA will have already been priced-in to rates and currency markets.
Global interest rates: The area of global financial markets that has been – and will continue to be – of greatest interest this week is US interest rates. The annual Jackson Hole Symposium is scheduled this week and will be prefaced by the release of FOMC Monetary Policy Minutes for the Fed’s most recent meeting on Thursday. The theme dominating trading leading into these events is the stubbornness of long term US bond yields, and the market’s apparent reluctance to push yields higher in tandem with short-term rates. The situation has some pundits worried, given the myriad of risks in markets currently, and the fact an inverted bond yield often portends recession (see 2Y and 10Y spread below). However, for equity markets, lower long-term funding costs would support valuations and attract yield chasers into stocks, so it may pay to be privy for stock traders to keep track of monetary policy news as the week develops.
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