Trade tensions: The announcement of a bilateral trade agreement between the US and Mexico was the predominant story yesterday, as US President Trump brought the world back one step from the protectionist cliff. Global bonds declined consequently, led by US treasuries, with the yields on benchmark 10 Year US Treasuries rallying to 2.88%. The optimism was tempered throughout the day as the details of the trade-deal were digested however, moderating the news’ effect on markets. It appears now – 24 hours or so after the fact – that although yesterday’s olive branch extended by the White House to one of its perceived adversaries is a welcomed development, its benefits are only as good as what it signals about future negotiations with the US’s bigger trading partners.

Emerging markets: The fortunes of emerging markets, it must be added, are less defined by politics, and more dictated by the structural concerns brought about by rising global interest rates. While geopolitics – particularly as it relates to the numerous trade wars waged by US President Trump’s White House – has catalysed the hysteria witnessed in markets such as Turkey, South Africa, Mexico and Iran, it is the US Federal Reserve’s rate hiking cycle that has established the bed rock for the challenges faced by these economies. Hence, the actions of US President Trump’s administration should be treated as the pin that risks bursting the emerging market balloon, rather than the air itself blowing it up to an uncomfortably stretched size.

Asia: This tempering of positive sentiment was evident in Asian equity markets throughout yesterday’s trade, which pared early gains to finish the day in underwhelming fashion. The CSI300 closed trade 0.19 per cent lower, the Nikkei edged-up 0.06%, and the Hang Seng finished 0.28 per cent higher for the day, as investors seemingly questioned whether the Trump Administration’s amiability would extend to Chinese trade negotiations. The trade dynamic for Chinese indices dulled hopes that a trend reversal may be at play for China’s markets, reaffirming the view subsequently that traders are still best placed to sell the rallies in Chinese indices.  

Japan: Activity in the Nikkei is providing one of the better gauges of risk appetite in global equity markets, as Japanese shares slowly climb back towards the 23,000 level. Following several days of strong gains, the Nikkei appeared to lose momentum during yesterday’s trade, apparently mired in a zone of rather considerable resistance. Fears of trade wars and emerging market crises have impacted the Nikkei greater than most other developed capital markets, which suffers from the double risk-off play of unwinding equity positions and buying into the safe-haven Yen. For the bearish or simply risk-averse traders, a short USD/JPY and short Nikkei position may prove an effective hedge if trying to protect and/or benefit from a return to risk-off trading.

Wall Street: As has consistently proven the case this year, US indices managed to power forward despite the diminishing effects of yesterday’s US-Mexico trade agreement sugar-hit, with all three major US indices clocking very modest gains. The performance by US markets was hardly outstanding; but considering Wall Street has only added to what were already record highs, the outcome of the session’s trade remains commendable. As markets enter the back end of the week, the prevalent question is how much further this current tilt higher can last. The benchmark S&P500 has tipped above the overbought mark on the RSI and has crept above the top side of its trend channel. While consensus suggests that the fundamentals remain supportive of further US equity gains into the foreseeable future, a brief pull back in US markets in the short-term looks to be on the cards. 

US fundamentals: US economic fundamentals will be placed under the microscope in today’s trade. Tonight’s US session will welcome the release of Preliminary GDP data, which is expected to confirm that the US economy grew at 4.0 per cent, negligibly below the 4.1 per cent printed in last month’s advanced GDP reading. The data release comes on the back of last night’s consumer confidence reading that vastly exceeded forecasts of 126.6, printing at a solid 133.4. As the tighter labour market and President Trump’s tax cuts filter through a hot US economy, consumer discretionary stocks in US share-markets underpin much of the Wall Street indices recent gains. Hence, while GDP and consumption data remains strong, it is expected that so too will be activity in the booming US share-market. 

ASX: SPI futures are indicating that the ASX200 will follow the global trend this morning, with that market indicating a 6-point drop for the local index at the open. Australian shares managed to consolidate a firm recovery during yesterday’s trade, rallying 0.57 per cent to close the day at 6304. The market-breadth traders were looking for to sustain a recovery after last week’s political chaos manifested as hoped, with 70.5 per cent of shares across the ASX200 higher for the session, led by a rebound in the financial sector, which saw 80.8 per cent of the companies in that space posting gains. Now that the index has recovered its lost ground, the remainder of the week may centre on the renewed battle with the 6300-mark, which continues to prove a significant support/resistance level for the ASX.