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MaxIG

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Blog Entries posted by MaxIG

  1. MaxIG
    Written by Kyle Rodda - IG Australia
    2018 reaches a climax this week: It’s effectively the last serious trading week of the year, and the economic calendar reflects that. Indeed, there’ll be a handful of days between Christmas and New Years to keep across, but with little news and thin trade, it’s tough to imagine anything coming out of them. The markets are still ailing, with the bears firmly in control of price action. There’s so many risk-events coming up this week, traders with a bearish bias are surely salivating. They did well to knock-off US equities in the final round of last week: the S&P500’s 1.9 per cent loss on Friday ensured another down-week for Wall Street. How this year is remembered and how next year will begin will in no small way be revealed in the next 5 days: if you’re a financial markets buff, it’s exciting stuff.

    Economic data: Concerns about future global economic growth tightened its grip on market participants last week. A slew of fundamental data was released across numerous geographies on Friday, and most of it was quite underwhelming. European PMIs undershot expectations, probably attributable in a big way to the impact of being caught in the middle of several domestic political crises and the US-China trade war. US Retail Sales data printed very slightly above expectations, to the relief of many, showing that the almighty US consumer is holding up well – at least for the time being. But it was a very soft set of Chinese numbers that had the pessimists tattling: the spate of economic indicators released out of China on Friday afternoon proved once more it’s an economy that is slowing down – and hardly in a negligible way.
    Recession chatter: Market commentary is continually focused on what prospect exists of a looming US recession. Financial markets, as distorted as they have become, do not necessarily possess strong predictive power of economic slow-downs. Nevertheless, your pundits and punters have taken a significant preoccupation with whether 2019 will contain a global recession. The signs are there, at least in some intuitive way. A google trends search on the term recession has spiked to its highest point 5 years, for one. Bond markets are still flashing amber signals: the yield curve is inverting, and US break evens are predicting lower inflation. Equities are still moving into correction mode, demonstrating early signs of a possible bear market. Credit spreads are trending wider, especially in junk bonds, as traders fret about the US corporate debt load. And commodities prices are falling overall, with even oil still suffering, on the belief that we are entering a period of lower global demand.

    Economic data: Concerns about future global economic growth tightened its grip on market participants last week. A slew of fundamental data was released across numerous geographies on Friday, and most of it was quite underwhelming. European PMIs undershot expectations, probably attributable in a big way to the impact of being caught in the middle of several domestic political crises and the US-China trade war. US Retail Sales data printed very slightly above expectations, to the relief of many, showing that the almighty US consumer is holding up well – at least for the time being. But it was a very soft set of Chinese numbers that had the pessimists tattling: the spate of economic indicators released out of China on Friday afternoon proved once more it’s an economy that is slowing down – and hardly in a negligible way.
    Recession chatter: Market commentary is continually focused on what prospect exists of a looming US recession. Financial markets, as distorted as they have become, do not necessarily possess strong predictive power of economic slow-downs. Nevertheless, your pundits and punters have taken a significant preoccupation with whether 2019 will contain a global recession. The signs are there, at least in some intuitive way. A google trends search on the term recession has spiked to its highest point 5 years, for one. Bond markets are still flashing amber signals: the yield curve is inverting, and US break evens are predicting lower inflation. Equities are still moving into correction mode, demonstrating early signs of a possible bear market. Credit spreads are trending wider, especially in junk bonds, as traders fret about the US corporate debt load. And commodities prices are falling overall, with even oil still suffering, on the belief that we are entering a period of lower global demand.

    ASX in the day ahead: There are signs a general risk aversion is clouding the ASX to begin the week. SPI futures are pricing a 32-point drop for the Australian market this morning, which if realized will take ASX200 index through last Tuesday’s closing price at 5576. There has been the tendency for the market to overshoot what’s been implied on the futures contract of late, as fear and volatility galvanizes the sellers in the market. This being so, a new test of last week’s low of 5549 could emerge today, opening-up the possibility for the market to register a fresh two-year low. On balance, the day ahead looks as though it may belong to the bears, with perhaps the best way to judge the session’s trade by assessing the conviction behind the selling. Although it appears the less likely outcome, a bounce today and hold above 5600 would signify demonstrable resilience in the market.

     
     
  2. MaxIG
    A “Goldilocks” end to the week: Sentiment was nicely boosted to end the week last week. US Non-Farm Payrolls printed as closely to a so-called "goldilocks" figure for risk assets as you're ever liked to see. The data revealed the US economy added 196,000 jobs last month, against an expected figure of 172,000. It was enough to keep the unemployment rate to its very low levels of 3.8 per cent. But the real kicker for market-bulls was the earnings component: wage growth missed estimates, revealing a monthly increase of 0.1 per cent, versus expectations of a 0.3 per cent expansion. The result from the NFPs achieved two things: a reassurance that growth in the US economy, while possibly late cycle, is still solid; and inflationary pressures coming from higher wages remain subdued.
    Risk appetite climbs: Equities and other risk barometers were the major beneficiaries of the "goldilocks" US labour market data. Cyclicals performed well on Wall Street, as the S&P500 sustained its focused climb towards record-highs. Credit spreads narrowed too, as yield was sort out in fixed income markets. The VIX fell into the 12 handle, as fears of a sharp and imminent economic slow-down abated. And US Treasury yields remained quite steady, as the likelihood of a Fed rate cut before the end of 2019 were unwound slightly. The dynamic has led to a great deal of positivity across global equities to begin the new week, with futures markets ubiquitously in the green.

    Trade-talks tread water: The other major event over the weekend was US-China trade-talks, and unlike the NFPs release, the outcome (so far) has generally been met with a shrug. Markets are hearing much of the same from both sides on the trade-war at-the-moment. Progress is ostensibly being made -- that's what Larry Kudlow told the press over the weekend, and that's what Chinese President Xi Jinping told the press on Friday afternoon. But markets are a bit fed-up with platitudes: they've priced in amicability, and are now craving a decisive resolution, with an unwinding of tariffs. That could still come yet, of course. However, it wasn't to be this weekend; so markets continue to wait with bated breath for a true breakthrough.
    Reshuffling in currency markets: The combination of strong NFPs and static trade-negotiations looks to have inspired a  fall in growth currencies and a lift in the US Dollar over the weekend. Moves in foreign exchange markets were quite limited in the G10 space to end the week. The Australian Dollar has fallen back to the 0.7100 handle; while the Kiwi Dollar and Canadian Dollar have also pulled back - the latter falling despite a continued climb in oil prices. The Japanese Yen was down, however, revealing supported risk-appetite in the market currently; and the Euro was also down, much further into the 112 handle, as pessimism reigns about the Eurozone's economic prospects. Naturally, the Pound also dipped, unaided by heightened Brexit fears as the April 12 Brexit-deadline looms.
    China’s gold-bugs: Speaking of the currency complex, Chinese foreign reserve data were released over the weekend, and revealed that the PBOC once again increased its gold reserves last month. The motivation for doing so is speculative, and probably multifaceted. Nevertheless, one large consideration from Chinese policymakers must be to reduce exposure to the US Dollar. In the face of geopolitical conflict, and a begrudging dependence on the US Dollar as global reserve currency, the PBOC joins a handful of global central bank's reducing dollar holdings, often in favour of gold. Though dollar pre-eminence ought to last for some time yet, China's gold-buying spree adds credence to the notion that the yellow metal may see more upside yet in the long term.

    Trumponomics 2.0? Incidentally, perhaps evidence of the benefits of separating a national economy from US Dollar exposure came over the weekend. In the newest chapter of the Trumponomics handbook, the US President announced his desire to see the Fed undertake another round of Quantitative Easing to further fuel the US economy. Perhaps emboldened by (the perceived) success of forcing the Fed to halt rate hikes last year, the President has turned his power to force outright rate cuts. The President's rationale is easy to ascertain. But reading between the lines: given his desire to carry a strong economy into the 2020 Presidential campaign, might this outburst indicate the President's belief the US economy might soon slow down?
    ASX to reclaim losses this morning: As far as Australian equities go today, the bullish lead handed to market participants should see the ASX200 climb about 32 points this morning. If realised, this will put a line under a couple of days of rather broad based selling on the Australian stock exchange. Seemingly marching to a beat separate from that of the rest of the world, the ASX200 registered noteworthy falls to end last week. It was a wholesale exit from Australian stocks, with every sector in the red on Friday, on 18 per cent breadth. The rationale isn't clear as to why this was so: market internals were quite balances, though momentum had arguably gotten a bit over down. Regardless, global bullishness should spark a rebound, ahead of another busy week for traders.
    Written by Kyle Rodda - IG Australia
  3. MaxIG
    Written by Kyle Rodda - IG Australia
    A (relatively) settled session: It’s been a soft day for global equities. With almost exactly two-hours to go in the US session at time of writing, another modest rally has apparently been faded by traders. Indications are that Wall Street will close lower. If proven true, this will punctuate a mixed day for Europe, and quite a solid day for the Asian region. The former found little impetus to be bid higher, while the Asian session showed the ebullience of diminishing trade tensions. Scanning the major indices, volumes were up compared to their 100-day average, however were slightly down when compared to their 10-day and 20-day average. It reveals a market that is more settled than what it has otherwise been seen during the global share-market correction – but remains vigilant and prepared to turn at the sight of bad-news.
    Global growth: Given price action in last night’s trade was relatively more subdued, traders and analysts seemed able to take the clearer air to reflect on current market drivers. The theme that’s popped up consistently in the last 24 hours can be crudely articulated as “downside risks to growth”. It was a theme adopted by ECB President Mario Draghi during his press conference following last night’s ECB Meeting; and it was also referenced by PBOC last night in relation to China’s economic fortunes. It bears repeating: October, November and December in markets have been characterizes by bearishness, of course. However, the causes throughout this period have shifted. What was initially a sell-off catalysed by fears regarding higher US interest rates has transformed into one driven by fears about slower global economic growth.
    ECB meeting: Last night’s headline event captures this well. The ECB met and broadly met traders’ expectations: rates were of course kept on hold, and the central bank’s QE program will come to an end. As always, the commentary and press conference were where the interest lay, and ECB President Draghi delivered a cautious but stark message. The balance of risks to the EU economy have shifted to the downside. The ECB lowered its forecasts for growth and inflation, even further below what could be considered objectively strong figures. Overall, President Draghi was judged as quite dovish about the prospects for European monetary policy. Though it was not stated explicitly – central bankers rarely communicate in such a way – the subtext of the speech strongly implied that any true policy normalization from the ECB is some way off.

     
    Whatever it takes: It’s a fascinating conundrum for the ECB. After a decade of experimental monetary policy, on balance the central bank’s greatest endeavours haven’t seemed to work. President Draghi’s “whatever it takes” attitude has supported markets, but evidence for his success is scant. The counter-argument to this pessimistic take on the Eurozone and ECB always seems to go something like “yes, things aren’t good, but imagine how bad things could have if the ECB hadn’t done what it did!”. It could be a valid point – one better for the historians to take care of somewhere down the line. However, the situation is poised to be this: the global economy will eventually experience a recession, and the ECB will more-likely-than-not be at effectively negative interest rates. The whole affair engenders very little hope or confidence in the future of the European economy.
    The news flow: That reality considered, traders tipped their hat and gave a sympathetic nod to the ECB after its meeting, and more-or-less moved on. There wasn’t much bullishness to be found in markets last night, however it wasn’t a risk-off night either. A lot of commentary overnight has pointed to the trade-war being behind the session’s softness. China has reportedly detained another Canadian citizen on national security grounds, presumably in retaliation to Canada’s arrest of Huawei CFO Meng Wanzhou. While on the other side of the world, members of the Trump administration declared that China ought to concede more to resolve the trade dispute. Overall, there was little substantial or game-changing revealed to markets – mostly just noise relating to the familiar and ongoing concerns that have been long-rattling markets. Today’s big Chinese data dump will be now be the one to watch.
    Not risk-off; but not risk-on: The price action communicated this reasonably well. US Treasury yields have stayed (fairly) still: the US 10 Year note held at 2.90 per cent, and the US 2 Year note dipped 1 point to 2.75 per cent, widening the spread there to 15 points. Wall Street is heading for a flat day, though with an hour to go in trade, the Dow Jones is a skerrick higher. The DAX and FTSE were both down 0.04 per cent. The greenback pushed-higher, mostly due to a weaker EUR, which fell to 1.1364. The Pound is up a skerrick, while the Yen, reflecting the day’s sentiment, fell slightly, just like gold, which is holding support above $US1240. The Australian Dollar is practically trading sideways at 0.7220. Credit spreads narrowed on the perception of diminished risk. And in commodities markets, copper is flat, and oil and iron ore rallied.
    ASX200 today: This is the context for Australian trading today, and with all of that digested, SPI futures are telling us we are set for a 14-point drop at the open for the ASX200. The ASX took the momentum generated by the improved sentiment about global growth yesterday, with the cyclical mining, consumer discretionary and industrial sectors some of the best performing. The rally lost legs throughout the day, as traders seemingly opted to fade the run once again. Volumes were high, but breadth was uninspiring.
    The foundations are set for another lower-high for the ASX200 index, reinforcing the notion the market is in some bearish down trend. Some contrary evidence suggests the worst is behind us: the RSI is still showing bullish divergence, and downside momentum is moderating. As it currently stands, a new low, as far above 5510 as possible, and/or a rally through resistance at 5705, is broadly the challenge the market needs to overcome to demonstrate evidence of a possible bullish turn in this market.

  4. MaxIG
    A (shallow) sea of red: There is a lot of red across the board for global equity indices to start the week, but the extent and strength of the downside swings have so far proven quite benign. The theme dominating markets yesterday and overnight was that of slower global growth. It kicked-off more-or-less following the release of some abysmal Chinese trade figures, that added further concern that the Chinese, and therefore global economy is heading for a significant slow-down. The data sparked a generally bearish mood in global markets, prompting a bid-higher in traditional safe-haven assets. At time of writing, the JPY is up along with gold, equities are down, copper is off, commodity-currencies like the A-Dollar has dipped, while bond prices are relatively steady.
    A still quiet day: The VIX index jumped at the start of day’s session but is paring its gains. It remains below the 20 level still – far from its lofty December heights. Concerns about slower global growth is the theme as mentioned, however it’s not rattling trader nerves right now as much as it might have in the recent past. Activity has also been thin. Volumes in every major share market were markedly below average. The swings we have seen in prices too are very modest compared to what one might expect in a market still inhibited (somewhat) by thin holiday liquidity. Global growth is a major headwind, markets are sure of that. However, the behaviour of traders could just as readily be attributed positioning ahead of several weeks of event risk and possible uncertainty.

    Asia pullback: This was especially true in Asia, where Japanese markets were closed for a bank holiday. Looking beyond our local borders for now, Chinese and Hong Kong markets were of primary concern for market participants yesterday. The CSI300 looks like its abandoned its bounce, failing to break through 3100 again. The Hang Seng is trading in a very choppy way and shed 1.38 per cent during trade. Once more: this did occur on rather low volumes. The curious point of price action manifested the USD/CNH, which perhaps owing to the weaker greenback, managed to maintain its rally, to end trade at 6.76. Nevertheless, it was a lacklustre and bearish day in Asian markets, that subsequently flowed into a similar day across Europe.
    Start of reporting season: For US markets, reporting season tops the list of priorities for traders. It commenced today, with the first week of the season dominated by the financials sector. Citigroup was the first cab off the rank and though it posted lower revenues, it's aggressive cost cutting proved enough to lift earnings for the last quarter. It's a supportive signal for macro-watchers, Citigroup's solid result, given the overall downtrend in bank stocks for the better part of 18 months. The sector is considered often a canary in the coal mine for the broader economy. It sets the tone for the other major financial institutions to report this week, which though unlikely to shift overall market sentiment by way of virtue of their results, will provide handy clues about the economic outlook moving forward.

    Light-data, Brexit the event-risk: The sentiment generated from US reporting season and the North American session will probably colour Asian trade again today. The economic calendar is very light-on meaningful data, so traders’ leads, in the absence of surprise events, will be taken from Wall Street's activity. In terms of surprises, whispers coming from Westminster Abby could be a possible cause. The "meaningful vote" on UK Prime Minister May's Brexit-deal will transpire in the next 24-48 hours. Betting markets are overwhelmingly pointing to a failure for the bill to pass through the House of Commons. All the anticipation already has traders jumping at shadows: rumours that the pro-Brexit European Research Group would support Prime Minister May's exit-Bill led to a spike in the Pound, before it retraced its gain when that story proved more fluff than something truly substantial.
    ASX200: Despite Wall Street’s weak-lead, SPI Futures are pointing to a gain of between 5 to 10 points this morning. For the first time in several weeks, the ASX’s trade was dictated by a game of catch-up to news from US markets. It made the session frankly rather dull – although for many surely that was welcomed. There was another challenge and failure of 5800 resistance in the early stages of the session. The bulls quickly gave up the ghost as the broader region’s traders came on line, resulting in a sluggish day for the ASX200. A silver lining for the bulls is that once again, Australian stocks managed to stage a meaningful rally into the close – a sign oftentimes that the “smart” money sees value in the market.
    Support for the ASX: Even still, like Wall Street indices, the market’s recent rally is looking tired. Upside momentum has truly slowed, and the RSI is flattening out at a stable level around 60. Markets tend to test lows to confirm that whatever sell-off preceded its current level is truly over. On that basis, and given that US earnings, growth-data and Brexit are raising the odds of a significant risk-off event in the short-term, the ASX200 may look to test several possible levels to the downside. 5700 will hold psychological significance, before 5630 opens-up as previous support/resistance. This is followed by 5550, at which the market bounced off twice, with the final and most relevant support level at 5410 – a point that represents the make-or-break between a true recovery or further falls.


    Written by Kyle Rodda - IG Australia
     
     
  5. MaxIG
    A bearish day: It was a hectic day on the dealing floor, yesterday. Several surprises smacked markets during early Asian trade, and the subsequent 24-hours has since belonged to the bears. The “slower global growth” narrative is gaining momentum, driving traders from riskier assets into safe-havens, as fear snowballs. The VIX is well off its highs from last week, but it did lift overnight, nevertheless, with price action indicating the markets are bracing for further pain. Overall, it was mostly one-way traffic for equity markets – the exception being the ASX, which stands out amid the sea of red, for reasons soon to be discussed. However, yesterday’s rally will likely prove the exception to the rule, as SPI Futures prepare Australian investors for a 38-point fall for the ASX200 this morning.
    ASX bucks theme: Trade was thin in Australian markets during Thursday’s session, as can be expected this time of the year. Despite the doom and gloom stifling the rest of the financial world, the ASX200 performed quite well. The index closed 1.36 per cent higher for the day, closing above a cluster of resistance levels at 5633, on solid breadth of 79 per cent. There was a touch of debate as to how this could happen on a day of bad news, and where US Futures were getting pummelled. The best answer came from the Twittersphere: the tumble in the AUD combined with the big-fall in ACG bond yields increased the attractiveness of Australian stocks, as a lower currency and its effect on earnings, coupled with lower discount rates, improved the relative value of equities, translating into a general lift in the ASX200 index.

     
    A flash-crash? Nerves were rattled early in the Asian session by what is being dubbed a “flash crash” in currency markets. It’s a very emotive phrase, “flash crash”, eliciting thoughts of the Swiss Franc’s collapse in January 2015. But it’s the one the financial press is running with, and it isn’t entirely inappropriate, though the scale of the issue was perhaps overstated. It was a rapid and unfortunate chain of events that precipitated the “crash” yesterday and unfolded quickly: roughly in the space of 10 minutes did the AUD/JPY plunge over 7 per cent – really, an almost absurd move in what is a relatively liquid currency pair. Similar moves were witnessed in the USD/JPY and emerging market currencies, causing chaos in currency markets temporarily.
    A chain of events: An explainer of the series events is warranted, with the caveat that the description is simply the markets best guess about what happened. Apple Inc.’s poor results and singling out of Chinese economic weakness as one cause inspired a sell-off in growth/risk currencies. The unwinding of the JPY carry-trade as traders sought safety bid-up the price of that currency from what were already extreme levels. Because of the time of the day and that Japan was on a bank holiday, liquidity was very thin, leading to some turbulent trade and a widening of spreads. It seems that a bundle of large “stops” were blown out at key support levels in the currency pairs impacted, causing a cascade effect. From here, it is being speculated that the algos took hold, following the momentum of the market and exaggerating the move.

    Apple Inc.: The 30 minutes of madness was unsettling and sapped sentiment, however despite presumably broad individual losses, it wasn’t indicative of anything sinister on a grander scale. Traders apparently were able to acknowledge this, and focused their attention picking apart the major-underlying story: Apple’s cut of its Q1 revenue guidance. In the details, the statement released by Apple CEO Tim Cook outlined several company specific problems that led to the revenue downgrade, ranging from a stronger USD, poor timing of product releases, and a reduction in sales due to supply constraints. The matter is nuanced, with many equity analysts breaking down the company’s micro issues. Traders though clung on to one detail in particular: the allusion to a weaker Chinese economy as a cause for the company’s woes.
    An economic slowdown: The news confirmed a strong bias held by market participants: that the global economy is slowing down at a rapid rate. In unfortunate circumstances, last night’s release of US ISM Manufacturing PMI – a powerful forward-looking indicator of economic activity – showed a remarkably weaker than expected print. It added fuel to the notion that a cyclical economic slowdown in both the US and China, exacerbated by those two countries’ trade-war, is upon us. The confluence of events has driven traders from equities into safe havens. Both European and US stocks were down, gold has burst higher to $US1293, the Yen has climbed across the board. Most significantly, US Treasuries have rallied, bending the yield curve into a very ugly shape, as traders price in the prospect of Fed rate cuts in 2019.
    Markets are fearful: This isn’t written flippantly: markets are demonstrating price activity that suggests traders are preparing for a US recession. Under what other circumstances would a 50 per cent chance of an interest rate cut in the next 12-months be priced into the market? Absolutely, markets could be entirely wrong – it’s a philosophical debate as to whether markets are a predictive measure for the economy, and whether they are capable of processing and reflecting the necessary information to signal things like recessions. Regardless, sometimes perception is reality, as the cliché goes, so whatever truth, the market believes a major economic slow-down is nearing. It makes tonight’s US Non-Farm Payrolls and US Fed Chairperson Jerome Powell’s speech even more interesting. Will further confirmation come that US and global growth is truly slowing?

     
  6. MaxIG
    Written by Kyle Rodda - IG Australia
    A bullish Monday: That big uplift we were all expecting after the weekend’s events at the G20 has transpired. The trade-war truce, as fleeting as it may prove to be, has supported a substantial enough boost in sentiment. Risk appetite has been teased, and risk assets across the global, beginning in the Asian session yesterday, and carrying through European and North American trade, have dutifully rallied, consequently. It’s a synchronized boost, prevailing across asset-classes, with traders relishing the double-shot of bullishness injected into markets in the last 7 days: a much more dovish Fed, which has lowered the possibility of higher global interest rates; and a de-escalation of the trade-war, which has ameliorated the concerns regarding future global economic growth.
    Global stocks: There remains, at time of writing, a few moments left in the North American session, and as it stands, the good-vibrations are waning somewhat. Nevertheless, Wall Street is higher, capping-off a positive day for markets overall. The NASDAQ is leading the charge, up around 1 per cent for the session, while the Dow Jones and S&P500 are 0.7 per cent higher for the day. It follows an Asian and European session which saw the Nikkei up 1 per cent, the CSI300 up 2.8 per cent, the DAX up 1.85 per cent, and the FTSE100 up 1.2 per cent. Volumes have also been very substantial, running 30 per cent above average on the S&P, and a remarkable 45 per cent above average in Chinese share markets, adding conviction behind the day’s trade.
    Currencies and commodities: Across the currency and commodity landscape, a comparable appetite for risk has occurred. Growth proxy currencies have generally prospered: the Australian Dollar is (presently) trading at 0.7350 – having challenged the 0.7390-mark yesterday, before a raft of soft local data gut-checked the local unit – and the New Zealand Dollar is up around 0.6920. The Loonie is also rallying, benefitting from the additional support of higher oil prices. The US Dollar has been sold-off, along with other haven currencies like the Japanese Yen, pushing the price of gold to resistance at $US1232. The Euro is modestly higher courtesy of a weaker greenback, but the Pound has left the party following news that a vote of no-confidence looms for Prime Minister May in the British parliament. Finally, Industrial metals are higher, thanks to the uplift in economic-growth-optimism, paced by LME copper, which rallied 1.6 per cent.

    Can it last? So that was Monday, and its undoubtedly been a day of positive price-action. But it now begs the question: beyond a sweet one-day rally, does this move higher have more legs? As far as this week goes, the matter is dubious. Markets move on surprises, whether they be good or bad, and what market participants received on the weekend was quite a surprise: a cordial outcome to the trade-talks was expected and priced-in; what wasn’t, however, was the freezing of tariffs for 90-days, coupled with the various commitments to reform certain trade practices. The rush-of-blood for traders came as they attempted to price this new information into markets – naturally, leading to a spike higher in risk-assets. The problem is now that with today’s market activity this has been completed, meaning traders will now go back to looking ahead to the next events at hand.
    Risk events loom: Looking forward into just this week alone, there is an abundance of information to keep traders shuffling on their toes. Economic data wasn’t particularly heavy across the globe yesterday, but the next 24 hours will set in motion a fortnight of highly significant economic data. Locally, the RBA meets today, before the big-ticket Australian GDP print is released tomorrow. A slew of PMI figures will be released in the next four days across Asia, Europe and North America, and will provide a proper gauge on the state of global growth. US Non-Farm’s come out on Friday, potentially reshaping once more perceptions regarding the US inflation outlook and possible Fed policy. And OPEC meet on Thursday (AEDT) to discuss oil markets – an event which has taken even greater significance now after Qatar announced yesterday it plans to leave OPEC.
    Bonds flashing warning signs: Those are just the headline grabbers, too. There’s considerably more than just that going on. Fundamentally, from a macro-perspective, a reversal in sentiment if a data-point goes the wrong way for the bulls could shift the dial once more. The signs under-the-hood are already presenting this: despite rallying across the curve briefly during Asian trade, US bond yields have retraced their gains –  the yield on benchmark US 10 Year note climbed to 3.05 per cent, before plunging back below 3.00 per cent in US trade. Most worryingly, the spread between the 10 Year and 2 Year US Treasury notes narrowed to just below 16 points, while the spread between the 3 Year and 5 Year equivalent has inverted. This is as good as a flashing light as any to suggest that markets are increasingly pricing in slower growth, if not some sort of US recession, moving into the medium-to-long term.

    The here and now: ASX200: That’s certainly the alarmist view – and it should be noted that it’s a problem to be confronted in the slightly-more distant future. Bringing the focus back to the here-and-now and to today’s Australian session, SPI futures are pointing to a pull-back in the ASX200 of about 20 points. The day’s trade will be highlighted by the RBA’s meeting, but the central bank will keep interest rates on hold, and there are few surprises tipped to come out of the accompanying statement. Yesterday’s session, during which breadth was a remarkable 88 per cent, could be considered a combination of a recovery from Friday’s substantial losses, and a relief rally off the back of the weekend’s G20 meeting. Maybe futures markets are telling us a necessary moderation of that excitement ought to be in store today.
    It was the materials space that unsurprisingly led the charge during yesterday’s trade, supported by a climb in the financials sector. The former added 29 points to the index and the latter added 16. Energy stocks were the best performing in relative terms, as traders took the cues from Russian and Saudi leaders at the G20 regarding likely oil production cuts, to climb 4.6 per cent and tip-in 14 points to the ASX200’s overall gains. Riskier momentum/growth stocks in the health care and information technology sectors experienced a solid bid – a healthy barometer of bullishness. Ultimately, across the overall index, though it may not transpire today given early indicators, a rally beyond support at 5745 towards 5786 is required to maintain a bullish-hue for the ASX200 coming into the Christmas period, to open-up a run at the more meaningful resistance level around 5875. 

  7. MaxIG
    A good end to last week; a rough start to this week: Markets are going to be digesting some conflicting information to begin the week. Wall Street ended last week’s trading with a boost, following another economic release, this time Non-Farm Payrolls figures, that could reasonably be dubbed “goldilocks”. However, the weekend proved to bring with it some tumult that market participants thought they’d left behind in 2018: an agitated North Korea has gone back to firing missiles into the ocean, and there’s been threats of higher tariffs from the US President on the Chinese economy. So, although the economic data delivered a small-dose of positivity, old risks have resurfaced to renew anxiety about the immediate future.
    US NFPs another “just right” print: Beginning with the good news for risk-assets: US Non-Farm Payrolls figures were met with a swell of bullishness on Friday night. After Thursday morning’s “less-dovish-than-expected” US Federal Reserve meeting, at which that central bank emphasized its belief disinflationary pressure within the US economy were “transitory”, traders had their focus-fixed on NFPs for signs that this bias may be true. Though not clear-cut, market participants had their fears allayed: the US economy added another whopping 263k jobs last month, pushing the unemployment rate down to 3.6 per cent, but wages growth missed forecasts, to print at 3.4 per cent on annualized basis.
    Markets dash inflation fears: It must also be said that the US labour market participation rate fell too, which tempered some of the market’s enthusiasm. Nevertheless, the thrust of the data was this: the risk of an inflation outbreak is low, it’s been inferred, and that was enough to reignite the bullishness that had been dulled by the Fed. Crucially, perceived lower risk of higher inflation, and therefore a hiking US Fed, in the short-term manifested US Treasury yields. They dropped across the curve, with the yield on the US 5 Year Treasury note in particular falling 5 basis points.
    A Fed hike considered no-chance: Interest rate traders have set their bets of a rate cut from the US Fed before the end of 2019 to a roughly fifty-fifty proposition. This is in fact lower than where implied interest rate probabilities have been in the recent past – a rate cut in 2019 has been priced as high as an 80 per cent chance. But as it pertains to riskier assets: the combination of strong growth, as expressed through jobs gains, coupled with market-measures of inflation expectations suggesting price growth below the Fed’s 2 per cent target, are pushing flows into US equities.

    Growth and consumer stocks lead Wall Street’s gains: Hence, the S&P500 added 0.96 per cent on Friday, recovering much of the losses sustained in the prior two-day’s of trading. Though volumes were below average, market breadth was substantial, with 83 per cent of stocks higher for the day. Arguably, the most telling feature of market behaviour post-US-NFPs was whereabouts on the sectorial map the gains were made. US tech-stocks are portraying investor’s appetite for growth, adding most (around 5 points) to the S&P500 on a weighted basis pm Friday. And the consumer discretionary sector was the best performing in relative terms, as real wages stay well supported in the US economy.
    Geopolitics re-appears as key market risk: Because of this lead from Wall Street, the last traded price in SPI Futures has the ASX200 adding 31 points this morning. However, the true extent of these implied gains has been thrown into question, after the weekend’s news flow hurled up a series of “bad” news stories. In an act that might be described as equivalent to a child “chucking their toys out of the pram” for attention, Kim Jong Un’s ordered the launch of new missile tests over the weekend. While last night, US President Trump has suggested increasing tariffs on China if no trade-deal is struck this week.
    Australian Dollar wears the brunt of “risk-off”: The immediate consequences of these developments has been a big gap lower in currency markets this morning – especially as it related to the Australian Dollar. Ahead of a week that will be significant for the little battler in its own right, the Aussie-Dollar has tumbled in early trading, to trade as lows as 0.6970 (the losses have been even greater in the AUD/JPY). Keep in mind Japanese markets are still on holiday, so liquidity is going to be thinner than it is ordinarily, and will exaggerate moves in financial markets. Market dynamics aside, the re-emergence of geopolitical risk will certainly drag on sentiment to begin the week.

    Written by Kyle Rodda - IG Australia
  8. MaxIG
    A little bit of everything: It certainly wasn’t the highest-impact day market participants have experienced so far this year, but there was a spoonful of everything, thematically speaking that is, driving the macro-economic outlook for markets in 2019. To keep it high level, there was a series of significant growth-related data released out of all three of the world’s major economic geographies – China, Europe and China – plus a healthy smattering of geopolitics and corporate news to keep traders interested. Only, if you look at the price action, one might say that it didn’t amount to terribly much. Global equities are taking the middle road, posting a mixed day, as Wall Street creeps towards its close at time of writing; though some shifting in currency, rates, bonds and commodities markets has occurred.

    Markets immune to trade-war headlines: Fresh trade war headlines are at the top of the list of headline risks, however in contrast to what’s been seen in the past, the reactions have been muted. Arguably, and barring any news that hints at a true resolution in the trade war, stories that the US and China are getting along just fine are becoming (relatively) ineffectual. Yesterday saw the news that the Trump administration is considering pushing the White House imposed March 1 deadline for trade negotiations back another 60 days. The developments saw the standard risk assets shift – Australian Dollar-up, Asian stocks-up, US futures-up, commodities-up – but compared to the massive relief rallies seen in the past, the price action indicated a market that’s wanting more than just piecemeal developments in trade-negotiations.
    US Retail Sales a shocker: Hence markets moved past that news, as the tradeable appeal of trade-war headlines fades. The meaningful event market participants had marked into their calendar for last night proved of greater import in the end: US Retail Sales numbers for December were released and showed an abysmal set of numbers. In fact, they were so bad that the experts and the punditry have effectively written them off as a passing anomaly – one that can’t quite be explained properly. The figures themselves revealed US Retail Sales contract by a huge -1.8% in December, well below the “flat” figure estimated by economists. Though consensus is saying the data was too-bad-to-be-true, traders have adjusted their positions: bets of a Fed rate hike have been unwound back to effectively a 0% chance in 2019.
    US Dollar falls; Treasuries suggest slowdown: Naturally, the US Dollar has dipped, registering daily falls against most major currencies. US Treasuries have rallied too, which has probably very marginally benefitted stocks, with the yield on the 10 Year Treasury note falling 4 basis points to 2.65 per cent. As the Chinese and European economies slow, the US economy is acting as the fulcrum of global growth at present. Data points like US Retail Sales begs the question of how long this dynamic may last. A little while yet seems to be the popular answer. A look at what the US yield curve is doing is illustrative in this regard: the yield on 3- and 5-year Treasuries are below that of the 2-year, portending recession-risk in the medium term.

    No recession, but outlook still dim for Europe: The Euro was bolstered by its own set of economic data overnight. GDP figures were released for the Euro-bloc and the German economy, and while bad, they weren't as bad as forecast. The Eurozone's GDP came-in on forecast at 0.2 per cent, and while the German figures missed estimates and showed a stagnant economy last quarter, traders took comfort from the notion that at least the data hadn’t set Germany up for a possibly technical recession. Despite this, and the fact the Euro is edging back towards 1.13 again, there is a growing sense of inevitability about a European recession at some point this year or next. These things can’t be predicted of course, and perhaps a turnaround will occur, however the balance of probabilities looks to support the notion a recession is looming.
    Pound falls as Brexit reality hits: Continued Brexit uncertainty won't help Europe's economy, and markets were delivered a fresh dose of that too overnight. UK Prime Minister Theresa May lost another key vote in the House of Commons, placing in peril any chance of a Brexit deal, or at least a bill delaying Brexit, being passed. The Pound has returned to its (disputably) proper place, plunging back again into the 1.27 handle last night, and Gilts have climbed on the basis that a hard-Brexit will do no favours for the Bank of England and its bid to "normalise" it's interest rate settings. As always, the Brexit developments are being considered a problem unique to the European region, with little ramifications for broader markets. If Brexit accelerates Europe's into recession though, then this view ought to change.
    ASX showing signs of a pullback: SPI Futures are indicating a 2-point dip for the ASX200 at time of writing. The ASX200 is exhibiting signs of exhaustion now, as the market fails to push the index near enough or beyond the 6100 level. The conditions remain in place for future upside beyond that mark, but for now, market participants seem happy to either take profits, fade rallies, or just sit things out. The banks have unwound their gains following the post-Banking Royal Commission rally, and though it is showing signs of fundamental strength, a steadying in the iron ore price has mining stocks climbing, but at a careful tick. Hypothetically: if a pull-back does occur, 6000 will be a level of psychological significance, before true support around 5940 is exposed.

    Written by Kyle Rodda - IG Australia
  9. MaxIG
    A mixed day for global stocks: It’s been a mixed 24 hours for global markets. A series of conflicting messages are being delivered to traders, after the release of some major corporate reports in the past 24-48 hours. Market participants are truly in the meatiest part of earnings season now. The trader’s eye has been fixed on earnings from US tech and industrial giants yesterday and overnight; with the former, thanks to Facebook and Microsoft, beating expectations overall, but with the latter, courtesy of Caterpillar and 3M, undershooting consensus estimates. It’s all culminated in a high activity, but effectively flat, day for the S&P500, which has added trade 0.1 per cent.
    ASX200 seemingly to follow suit: Given the mixed lead delivered by Wall Street (and that of Asian markets yesterday, for that matter) SPI Futures are pointing to a slim 3-point gain for the ASX200 this morning. Two trading days in a row like that which was experienced on Wednesday may be difficult to come by, especially given the lack of a clear catalyst, for now. Perhaps its slightly academic, but the question for many now is how long this rally for the ASX200 can last. With new 11-year highs made, technical levels become difficult to ascertain. However, one useful guide may be the index’s multi-year trend channel: it suggests there remains room for the ASX200 to test higher levels from here.

    Wednesday’s CPI numbers: To jump back slightly to Wednesday’s trade, local market participants had their attention firmly fixed on Australian CPI numbers and that data’s implications for the AUD and RBA monetary policy. After a considerable miss last week in New Zealand’s CPI numbers, traders were wary as to whether comparable disinflation was emerging within the Australian economy. These suspicions proved valid: the numbers greatly underwhelmed: inflation printed flat on a quarterly basis, taking the year-on-year figure to 1.3 per cent. The data missed the consensus estimate for annualized price growth of 1.5 per cent – and came in markedly below the RBA’s target rate of inflation of 2-3 per cent. 
    AUD drops with AGB yields: Needless to say, markets reacted violently to the news, as traders rushed to reprice their outlook for Australian interest rates. The already sickly Australian Dollar dived over 1 per cent, tearing through a handful of resistance levels within the 0.7000 handle, to trade as low as 0.6964 overnight, before finding technical support. The moves in Australian Government Bond yields were probably even more remarkable: they plunged by as much as 15 points around the front end of the yield curve, and by as much as 10 points around the middle-to-back end of the curve, with overall yield bending into even greater inversion.

    Markets betting on two cuts from RBA: Naturally, the fall in the A-Dollar and bond yields was anchored in changing bets about what the RBA ought to do with interest rate policy – and perhaps more importantly, when they might do it. Traders have priced-in almost entirely 2 rate cuts from the RBA in 2019, with a cut fully priced in for the month of July. Remarkably, traders are also betting that the central bank’s meeting in May is more-or-less a “live” meeting. Implied probabilities currently suggest a fifty-fifty proposition that the RBA cut rates at that meeting – even despite the fact it will be held in the shadows of the Federal election.
    The USD also weighing on AUD: It’s worth noting too that, in the broader currency complex, weak domestic macroeconomic fundamentals isn’t the only factor enervating the AUD. The USD has touched two-year highs in the past several days, owing to several fundamental and technical drivers. Primarily, the greenback has been bolstered by further poor data out of Europe, which has seen the Euro test life in the 111-handle again. The other, perhaps more curious driver, of green back strength right now, is tied back to circumstance: with Japan about to head into an 11-day public holiday, traders are seeking USD denominated assets in anticipation of a period of (relatively) low liquidity.
    The ASX rally helped by CPI numbers: For all the bearishness when it comes to currency and rates markets, the ASX200 is thrived courtesy of the weaker Aussie Dollar and lower discount rates. The ASX had already followed through with Wall Street’s lead on Wednesday by the time CPI data was released. However, the extra leg up that came from the softer inflation numbers and the subsequent expectation of a cutting RBA was the extra fuel to lift the ASX200 to an 11-year high. Much like equity indices across global markets presently, momentum for the ASX is apparently tilted to this upside, even in light of what are currently mixed fundamentals.

    Written by Kyle Rodda - IG Australia
  10. MaxIG
    A night loaded with information: The pointy end of the week is under-way, and if only relatively speaking, markets are moving on the back of several key stories. Naturally, the centrepiece of this is Wall Street; and there’s been a timely mix of corporate data, economic developments, central bank meetings, and politics for market participants to digest. The intra-day battle of these narratives has caused some modest, but interesting enough, price action in financial markets overnight; with Apple’s earnings beat, weak ISM Manufacturing PMI data, a more neutral US Federal Reserve, and sputtering trade-talks between the US and China combining to twist market sentiment in interesting ways.
    The Fed centre of market attention: Proving itself once more to be the gravitational centre of the financial universe, the US Fed meeting has had the greatest hold over market participants overnight. The Fed delivered the news that many traders had been expecting: it doesn’t possess the “dovish” disposition that interest rate markets are implying. While the Fed did effectively downgrade its inflation forecasts, and dropped the interest on excess reserves to 2.35 per cent, Fed Chair Jerome Powell went to lengths to implore in his press conference that the Fed remains truly patient. That is: interest rates could move either higher or lower from where they are now.
    Markets sell-off on Powell’s neutral tone: After somewhat of a tussle, intraday price action suggests a market that has bought into Fed Chair Powell’s words. Having eked out another small gain to its all-time highs, touching 2954 in early North American trade, the S&P500 has sold of post-Fed meeting, to have shed in the realm of 0.7 per cent in the final two hours of the Wall Street session. Predictably, the US Dollar has rallied as traders unwind some of their bets on interest rate cuts from the Fed this year, leading to a lift in US Treasury yields at the front end of the US yield curve.

    Weak US economic data compounded sell-off: As it stands right now – and this reflects the knee **** nature of the price response – markets have an implied probability of 19 basis points of cuts from the Fed by year end. It’s worth noting, that although the Fed was the primary concern for markets last night, econo-watchers were taken aback by some poor US economic data early in the session’s trade, and probably compounded the impacts of the Fed’s “neutral surprise”. US ISM Manufacturing PMI numbers were released, and showed a significant miss: it printed at 52.8, versus expectations of 55.0 – the lowest print of this measure in 2-and-half years.
    US earnings lose some of their shine: The Fed, and to a lesser extent the ISM PMI numbers, have taken the steam out of what has been an otherwise solid earnings season. For one, US futures had been priming market participants for a bullish day on the market yesterday, after market bellwether Apple Inc exceeded expectations in their earnings Overall, US earnings have been positive, at least in relation to what has been priced in by the market leading into reporting season. But the little retracement in US equities last night betrays how much this market still relies on cheap money, and favourable discount rates, to sustain itself.
    ASX to follow Wall Street: Taking Wall Street’s lead: the ASX200 ought to shed 30 points this morning. The ASX is in the throes of its own earnings season; and thus far, it too has provided investors plentiful information. But for the index trader, this reporting season centres around the banks, and how their earnings drive bullishness of bearishness in the overall ASX200. And so far, after the ANZ reported yesterday, the impact has proven the former. Likely owing to a bit of “buy the rumour sell the fact” activity, the financials sector lifted the overall ASX200 yesterday, adding 30 points to the index.

    The banks in the bigger picture: For macro watchers and traders, despite the short-term lift in bank shares yesterday, the question regarding the banks pertains to whether what was revealed could spark a turnaround in trend in their share prices. The answer to this, which will be further illuminated when NAB reports today, isn’t compelling: in the big picture, the banks have traded lower for several years in-line with credit growth and property prices — two things the ANZ in its half-year results said it expects to be a challenge for the bank, and by extension the Australian economy, going forward.
    Written by Kyle Roddda - IG Australia
  11. MaxIG
    Activity lifts to end last week: A risk laden week has ended with a pop. Asian and European trade was solid, albeit dull. However, it was a clear-cut-case of risk-on during the North American session. The new fuel to the S&P500s fire came as US earnings season kicked-off in earnest. JP Morgan, and a handful of America’s other big-banks, reported and generally surprised to the upside. The catalyst served two purposes: one, it supported (granted prematurely) the view that assumed earnings growth across US equities may be too low; and two, it pushed the S&P500 above key technical levels – notably, psychological resistance at 2900.
    Traders are US earnings focused: That milestone, which has been clocked on three occasions in less than 18 months now, triggered a lift in trading volume that had otherwise alluded US stocks last week. As its been stated before: this is a stock-market primarily concerned now with earnings growth, before anything else. And the reasoning is logical: whether right or wrong, markets have priced in a dovish Fed, and something of a bottoming in global growth. Now what’s needed is a validation in the earnings outlook; less one that applies to the current earnings season, and more those of which to follow in quarters ahead.
    Market internals validate momentum: The first signs of that were delivered on Friday evening, so markets flicked the risk-switch. Once again: there was a marked increase in trading volumes during Wall Street trade, providing a very short-term confirmation signal that substance exists behind the market’s latest foray higher. Intra-day breadth was also solid, with 76 per cent of stocks, and 10-out-of-11 sectors, gaining for the session. This adds to the already bullish breadth signals in other, deeper measures of market internals. For one: the NYSE advanced-decline measure has remained, and again turned positively, to the upside, reveal solid momentum in the market.

    Fear-falling; but anxiety remains: Thus, with 2900 broken on the S&P500, barring any external shocks, the rest of the earnings season on Wall Street will probably end-up a day-to-day countdown to a new record-high for the S&P500. With all the excitement that captured market-participants on Friday, the VIX has plunged to new year-to-date lows. While the drop in the “fear-index” can easily be explained away, it probably doesn’t reflect the true-trepidation in the market at-the-moment. The rationale for very subdued implied volatility is very comprehensible. Nevertheless, memories are crystal-clear of what happened the last couple of times the S&P500 traded this high with volatility so-low.
    The bears are still hungry: Vol-canos, vol-pocalypses: they were two of the portmanteau floating around after big-spikes in the VIX last year following short periods of suppressed implied volatility. Hence, although US stocks sit nominally less than 40-points from new records, historical memory, mixed with market-fundamentals that are less favourable to those that supported previous record highs, has this latest record-run viewed through jaded-eyes. Despite constantly being proven wrong, the necessary pull-back in US stocks during Wall Street’s big V-shaped recovery still ought to be upon us, according to bears. Market participants’ complacency, as betrayed by the VIX, will only contribute to another correction and volatility break-out in time.
    The missing agitator: It’s true that the S&P500 is edging towards overbought levels when looking at a medium-term time frame. However, although the global economy is lacking the fecundity present in previous record-breaking rallies, a few ingredients that were present in recent sell-offs are missing. First of all, price-to-earnings ratios aren’t as stretched as they were in October and February last year. But more importantly, the key impetus for those two sell-offs will probably remain absent this time around: discount rates, although edging higher on Friday, are unlikely to rain-on-the-parade, with the US Federal Reserve all-but locked into keeping interest rates on hold.

    The ASX’s loose relationship: So: with this in mind, entering the week, and a period of high-impact corporate data, risk-assets sit cautiously on the precipice. The gravitational centre of financial markets is Wall Street, and consequently, its internal dynamics will be a large determinant of how markets trade this week – and for a little while yet. Of course, its influence will be of varying significance depending on the market in question. For one, the ASX200 is an index that has recently moved in relation to the S&P500 like Pluto does to the Sun. Today, even despite Wall Street’s bullishness, SPI Futures point to a flat start for the ASX.
    Written by Kyle Rodda - IG Australia
  12. MaxIG
    Written by Kyle Rodda - IG Australia
    America votes: Now we play the waiting game, it seems. The US electorate have set off to the polls to vote in their mid-term elections, and the world now awaits their decision. Financial markets aren’t exempt from the interlude, trading on very thin volumes, as traders opt to stick to the sidelines until a result is revealed. There appears a very general unwillingness to jump-in to markets ahead of the crowd on this event, presumably owing to the incredible surprises public votes have thrown-up in the past. A collective “let’s just wait and see” approach has been adopted by market participants, who will surely jump back into trading in a flurry once an outcome to the US mid-terms is known. As it stands, a reclaiming of the House of Representatives by the Democrats, and a hold of the Senate by Republicans is the bookies’ tip – a deviation from this outcome is where some degree of volatility may emerge.
    ASX200: SPI futures are presently indicating a slim 8-point dip at the open for the ASX200, following a day where the Australian share market rose by almost 1 per cent. Volume was nearly half of the 100-day Average-Volume-At-Time yesterday, courtesy of not just looming US mid-term elections, but also the Melbourne Cup public holiday in Melbourne. The lull provided opportunity for the bargain-buyers to jump into the market and try to pick-up a few good deals. The thin trading accentuated the bid-higher of the ASX200, resulting in a day’s trade of 70 per cent breadth. The day’s rally was certainly little to crow-home about: the thin volume exaggerated the upward move and took the ASX200 index merely to the top of a sideways trading range (between 5805 and 5875) that the market has occupied since the start of the month.

    RBA: The event of most significance during Asian trade yesterday (outside the horse race, presumably) was the RBA’s monetary policy meeting. No move and few surprises were what punters expected, and the price action in markets reflected that – the AUD/USD barely budged, trading between 0.7205 and 0.7215 after the release. There was some interesting detail in the accompanying policy statement however, that illustrated the gradually shifting perspective of the RBA on the local economy: the unemployment forecast was revised down to 4.75 per cent by 2020; the inflation forecast was pinned-down to 2.25 per cent by some point in 2019; and the central bank’s assessment on credit growth acknowledged it had now “eased”.
    Asia: Across the broader Asian region, a continuation of the week’s themes played-out. Like the ASX, thin activity propped up the Nikkei and Hang Seng, with the latter experiencing volumes a relatively significant 17 per cent below average. Chinese indices witness more-or-less normal trading and it showed in the results: the CSI300 (for one) was down -0.6 per cent for the day, primarily due to traders exiting their long positions in Chinese stocks again, after the excitement about possible progress between the US and China on trade negotiations fizzled. Futures markets are projecting a flat to weaker start to Asian session today; however, as the results of US mid-terms filter through throughout the day, expect outsized reactions in Asian equities if some surprises eventuate.
    Wall Street session: As of this week, Wall Street closes at 8.00AM (AEDT). At time of writing, the lacklustre trading and thin volumes that has characterized markets the world over this week is generally holding true for US stocks, too. A fine green layer of paint is covering equity indices today, with the Dow Jones, S&P500 and NASDAQ all slightly higher for the session, following a down-session in European shares earlier in the day. A bounce in US tech stocks has underpinned the move, with the NASDAQ experiencing very close to normal trading activity throughout the North American session. US Treasury Yields have furtively ticked higher overnight, taking the yield on benchmark 10 Year US Treasuries to 3.22 per cent, and the yield on the US 2 Year note to a new post-GFC high of 2.92 per cent.
    US Treasuries and Currencies: The price action in US bonds will be worth watching once mid-terms are done-and-dusted, especially given that the next major risk event this week will be the meeting of the FOMC on Friday morning (AEDT). Equity markets have often sold-off based on a spike in bond yields in the recent past, and if the Fed on Friday espouse a hawkish view for rate hikes in 2019, the repricing of US interest rate expectations could spark some sort of sell-off in US Treasuries and global equity markets. As it applies to the US Dollar, currency markets have also proven stagnant ahead of US mid-terms. The greenback is weaker, but that appears largely due to a (very) modest bid higher of the Pound and Euro on the back of Brexit optimism. Despite the uncertainty of the US elections, the Yen remains weaker and gold has dipped to $US1226 per ounce.
    Oil: The most significant price action over the past 24 hours has been the continued fall in oil prices. The price of the black stuff plunged further last night -- to the low$US62 and $US72 per barrel mark in WTI and Brent Crude, respectively -- as fears of undersupply, courtesy of fresh US sanctions on Iran, were quelled. News that the White House had provided temporary exemptions to some countries to continue importing Iranian oil, coupled with a pledge from Russia to aid the Iranians move their oil stockpiles onto global markets, have been the major drivers of the sell-off. One must also surely assume the Saudi's are boosting their output to stave-off more bad press after the murder journalist Jamal Khashoggi. Nevertheless, the fall in oil prices has weighed on USD/CAD and dragged the overall Bloomberg commodity index down for the day.

  13. MaxIG
    American stocks fall: Wall Street looks poised to register its worst daily performance since the start of the year. The technical action was sweet: another early challenge of 2815 – the price ran slightly above that – before the bears swooned, and traders “pulled the trigger”. It’s been a day of selling since, with the S&P500 down 0.6 - 0.8 per cent, at time of writing. It’s nothing to be too concerned about, of course. This is nothing like the behaviour witness at the end of last year. It’s just that the price action has the commentariat ready to call the long-awaited reversal in US, and global equities. The closing price will be crucial today, but a bearish engulfing candle already signals looming weakness.
    Bulls fail to break technical resistance: It’s the considerable lack of upside momentum, coupled with the breadth of the sell-off, that is noteworthy. After all, again, the S&P500 is only down 0.6 per cent on the day. The RSI is pointing its head downwards, though, clearly breaking with its recent upward trend. Intraday breadth is very poor: only around 20 per cent of stocks are higher for the session, and every sector is presently in the red. Right now, the triple top at 2815 – the formidable level that saw the bulls bail-out on as many occasions in Q4 2018 – has proven its might. The discourse might once again shift from here to where the next low could be registered.

    Asian and Europe market activity was solid: The activity in US markets comes at the end of 24 hours that was rather friendly to Asian and European equities. Volume was low in European trade – a touch of Mondayitis perhaps. But Chinese and Hong Kong traders were voracious: volumes were 216 per cent higher than the 100-day average in China’s equity markets. Traders in Japan and here in Australia were more settled. However, the appetite for risk was still present: the Nikkei was up over 1 per cent on the day; and though the ASX200 failed to hold its break above 6230 resistance, a 0.40 percent gain for Australian stocks amounted to a respectable session for the bulls.
    Possible trade-war resolution stoked sentiment: As would be well known to anyone in markets, the logic for yesterday’s upside in Asia and Europe was that a true resolution in the US-China trade-war is upon us. The news broke before Australian market-open, and the positivity carried through the day. As alluded to, the ASX200 fed on the sentiment, clocked most its gains in early trade, before admittedly grinding lower throughout the day. Some of the cyclical sectors, along with growth stocks led the intraday leaders in nominal terms. Consumer discretionary, materials and industrials stocks were all up, while the information technology sector, as well as the biotechnology stocks in the healthcare sector, also put-in significant rallies.
    ASX to follow Wall Street’s lead: Alas, with Wall Street’s bearish day, the ASX200 looks poised to adopt the negative sentiment. According to SPI Futures, the index ought to fall approximately 40 points at this morning’s open. The ASX200 is flashing its own signals that momentum is slowing, brandishing a break in its RSI. But up until yesterday, the bulls were dogged in their conviction to keep the market above the trendline established from the Christmas Eve low. A technical “golden cross”, whereby the index’s 50-day EMA crosses above its 200-day EMA, transpired out of yesterday’s trade – generally considered a good indication of the prevailing bullishness, and therefore further upside, in the market into the medium term.

    Australian economic to grab attention: Nevertheless, many of the buy signals may well break down this morning, as traders mull the prospect of a general, short-term retracement in global equities. The next level to watch for the AX200 might be previous resistance at 6105. Although this will be a curious narrative to watch unfold, from a local perspective, and maybe just for the next day or two, the news flow might be more preoccupied with matters relating to core-macroeconomic concerns in Australia. Backing on from yesterday’s mixed Building Approvals and historically weak Corporate Profits data, today will see the release of local Current Account figures, before attention turns to the RBA’s monthly meeting this afternoon.
    The RBA and the range-trading AUD: It’s well known that the RBA will not move interest rates today. Instead, as storm clouds build on the Australian economic horizon, traders will be surveying the bank’s commentary, especially as it relates to their recent adoption of a “neutral” bias. The market presently thinks that the probability of a rate cut from the RBA before the end of the year is around 80 per cent. The concerns centre on the dimming global economic outlook, coupled with the growing pressure falling property prices will have on already strained domestic demand. The Australian Dollar has proven resilient recently and will come in focus today around the RBA release: analyst’s will continue to watch the 0.7050 – 0.7200 range moving forward.
    Written by Kyle Rodda - IG Australia
     
  14. MaxIG
    A flat, but generally positive, night’s trade: Wall Street closed flat to slightly higher overnight, in a day of soft activity that might well be chalked up to the numerous event risks awaiting markets in the second half of the week. The key stories in European and North American trade centred around European growth data; along with the ongoing US earnings season. And on balance, belying the lukewarm day in global stocks, the news was relatively positive. European economic data broadly beat expectations, resulting in a lift in the Euro and European yields; and after the US close, Apple Inc reported, and is trading higher in post-market trade.
    Chinese economic numbers disappoint: The big news in the Asia region yesterday was China’s highly anticipated manufacturing PMI numbers. Recall: it’s been this data-point that has been the centre of fears about China’s economic slowdown – and has been used as the barometer for policy makers success in re-stimulating the Middle Kingdom’s economic activity. For one, yesterday’s print was underwhelming. Anticipated to print at 50.5, it came in at 50.1, stoking concerns that manufacturing in China could be slipping back towards a “contractionary” condition – that is, a print below 50, and forecasts a potential slip in activity in the broader Chinese economy.
    What’s true for developed markets is true for China: Revealing investors priorities, however: the weaker data prompted a run higher in Chinese stocks, as markets bet on the need for more stimulus from China’s policymakers. Just like it has been, and continues to be the situation in developed markets, bad news is good news for risk assets. Poor economic data and the subsequent belief it necessitates fiscal and monetary stimulus drives flow into the stock market; while good economic data and the subsequent belief it implies a removal of fiscal and monetary stimulus drives flows away from the stock market.

    ASX pulls back from 11-year highs: The ASX200 caught little of China’s rally yesterday, giving up 0.5 per cent during the session. It was an overall lack lustre day. Last week’s gainers, those in interest rate sensitive sectors like that of real estate and utilities, declined, as bond yields recovered some of their losses. And energy and materials stocks seemed to suffer from a fall commodity prices. Although numerous causes for the broadness of yesterday’s selling has been concocted, much of it seems a function of a small market pull back, after the ASX200 clocked its 11-year highs last week.
    ASX primed for bank earnings: SPI Futures are indicating today that the ASX200 will open 15 points higher this morning. A possible inhibitor of upside in the market this week is that we are on the cusp of our big banks’ confession season. The micro details of each bank aside, the macro outlook for the banks have improved recently, in response to a healthy steepening in bond yield curves. It’s well known the ASX struggles to prosper without the help of bank shares, so for market-bulls, some positive surprises from the banks this earnings could be the catalyst for a new push higher in the ASX200.
    The Fed: markets’ main event: All eyes now turn to the US Federal Reserve. They’ll meet tonight (AEST) and will all but certainly keep interest rates on hold. Market participants instead will be keeping tuned to what the Fed has to say about the outlook for the US economy. Despite reasonably solid economic data lately, markets are still pricing in a full cut from the Fed within the next 12 months. It’s this assumed dovish bent by Fed that’s in large part sustained risk-assets so far this year — and underwritten Wall Street’s record run in the past four months.
    Have markets mispriced US rates? The risk tonight is that the Fed is more optimistic than expected: a dynamic that could force the adjustment of rate expectations and take the steam out of global equities. A pressing need to move to anything resembling a rate hiking bias by the Fed is absent, of course; especially given last year’s market tumult in response to a “hawkish” Fed. But the core question is whether the presumption of such a dovish Fed is accurate. This fact is less certain and could be contradicted by the central bank’s communications with the market tonight, meaning a potential reshuffling in markets consequent to tonight’s meeting.

    Written by Kyle Rodda - IG Australia
  15. MaxIG
    Waiting, waiting, waiting: Another uneventful night in global markets, traders have apparently occupied themselves positioning for the ramp-up in economic data in the next 24 hours. Equity indices pulled back in North America and Europe, as global safe-have bonds caught a bid. Commodities fell across the board, naturally with the exception of gold, which ticked higher on haven-demand. The G10 currency complex was lifeless, with the Japanese Yen edging higher as the carry trade was unwound on anti-risk sentiment. And in line with overnight trade, after a flat day yesterday, SPI Futures are indicating the ASX200 will drop 15 points come the open this morning.
    IMF rubber-stamps growth outlook: The macro-event that caught most attention last night was the IMF’s anticipated downgrade to global growth. Given the loaded calendar from now until Friday, perhaps that update was an appropriate precursor to the litany of risk-events. As can be inferred from the description of overnight price action, the release wasn’t met with a great deal of surprise, reaction or volatility. However, the message was stark, and worth noting. In the wise-old-eyes of the IMF, global economic growth ought to slow down to 3.3 per cent in the year ahead – a revision lower of its previous estimate in January of 3.5 per cent.
    Slow-down to be fleeting? Despite all their resources and soft power, the IMF told market participants something that they sort of already knew – and more importantly, had already priced-in. Higher trade barriers have sapped trade-flows and growth in emerging-markets. The consequences have flowed to developed economies – especially those of the European Union, which collectively will slow down to 1.3 per cent this year. For all this knowledge, risk assets remain supported. Maybe it’s this silver lining that’s keeping hope alive: although certainly below what its been in the past, forecasts suggest that the global economy will recover into the back end of 2019.
    Bonds flashing amber signals: The growth picture beyond that is a little sketchy, though on-balance its probably not a positive one. It is a matter of debate as to what this all may mean in a contemporary context, but at least a recognition of what rates-markets may be suggesting about the longer-term growth outlook should be discounted. Yield curves across developed economies still portray an ugly kink in the 3-to-7-year sections, implying a marked economic slowdown, along with subsequent central bank policy intervention, the world over at around that time-period. Generally, market participants do seem cognizant of the fact, and are treating it with merit.

    Make hay while the sun shines? But its material consequences aren’t yet being felt: it’s a case of make-hay-while the sun shines. And as far as risk assets go, the momentum on Wall Street Indices, and to a lesser extent the ASX200, can be somewhat attributed to this short-termism. Earnings growth prospects for the next quarter and next half are dim. Wall Street earnings season is practically upon us, and the series of revisions that have taken place since the start of 2019 has led to the consensus view earnings growth will have contracted by over 4 per cent; in Australia, earnings growth is expected to stagnate.
    Earnings forecast to improve, eventually: However, the bigger picture view is that earnings growth will turnaround. And in no small part it seems, markets are banking on a central-bank engineered turnaround in the global economy before year end. More than just a fall in discount rates, the projected recovery in sales growth across the S&P500 speaks of a belief that demand can be sustained enough to keep delivering growth to US corporate’s top line. It’s here where the bulls and bears become divided: sure, a chase for yield and capital growth will support flows into equities, but is a lift an improvement in fundamentals really that likely?

    The week to finally pick-up: It all rests on the fortunes and policymaking of the global economy’s triumvirate, of course: the US, Euro-zone and China. And the reason why the back-end of this week is significant is that key data is released out of all three that will illuminate whether markets are correct with their current bullish-view. The ECB meet this evening, with their thoughts on the continent’s short-term growth to be closely perused. US CPI and FOMC Minutes will be assessed in the context of confirming whether US interest rates will remain accommodative into the extended future. And Chinese CPI and trade balance will be carefully monitored when it arrives, too.
    Written by Kyle Rodda - IG Australia
     
  16. MaxIG
    US Retail Sales capped-off last week: The climax of last week’s trade was Friday night’s US Retail Sales data release. As is well known, sentiment in the market centres around concern for the state of the global economy. As the biggest component, of the world’s biggest economy, US consumption data was hotly awaited to test the thesis that the global economy is winding down for another cycle. As it turns out: right now, those fears are very slightly exaggerated, if the US Retail Sales data was anything to go-by. Core Retail Sales came-in bang on expectations at 0.5%, taking the annualized figure to around 3.2 per cent.
    Fed-cut expectations unwound slightly: Solid-enough US Retail Sales data numbers tempered some of the enthusiasm for rate cuts from the US Fed. To be clear: imminent US rate cuts are still in the market. In fact, 25 basis-points of cuts remain implied for July’s Fed-meeting. However, as it pertains to this week’s meeting, as well as the aggressiveness of future policy intervention from the Fed, traders unwound some of their rate-cut bets in the market. US Treasury yields climbed as a consequence on Friday, stifling the rally in global sovereign debt, with the yield on 2 Year US Treasuries, in particular, jumping by as much as 7 points.
    Bond yields climb, and stocks dip: The marginal pricing-out of Fed-intervention in the US economy was a negative for US stocks during Friday’s trade. Seemingly, this was particularly true for high-multiple stocks in the S&P500, like US-tech, which lead the overall market lower. As is widely known, US equities’ strong performance year-to-date has been largely attributable to a progressive increase in rate-cut expectations from the Fed. Though the overall trend remains intact – that is, rate-cuts are coming from the Fed in the near-enough future – Friday’s US Retail Sales numbers somewhat curbed the excitement for imminent, easier monetary policy-conditions, and its consequent benefit for US risk assets.
    US Dollar rallies across the board: A shift higher in US rates markets catalysed a spike in the US Dollar. The Dollar Index climbed 0.64 per cent on Friday, underpinned primarily by a tumble in the EUR/USD, which fell into the low 112.00 handle following the release. The Sterling also felt the pinch, plunging into the 1.25 handle for the first time since December last year, unaided by the ongoing uncertainty associated with the UK’s ruling Tory party’s leadership contest. While the Japanese Yen, as the final piece of the global currency market’s big-quartet, also softened against the Greenback – though it’s still finding buyers amidst continued global economic uncertainty.

    Australian Dollar tests new lows: This dynamic in global currency markets weighed heavily on the Australian Dollar, in particular. The AUD/USD touched a new-low on Friday, trading at levels not experienced since January’s notorious FX-market “flash-crash”. The all-important yield differentials between US Treasuries and Australian Commonwealth Government bonds crept wider, with the spread between the comparable 2-year bonds expanding to 85 points. The local unit now hangs precariously above a level of price-support in the market around 0.6865, which has been tested on 4 separate occasions in the last month. It sets-up a big week for the currency, ahead of the release of tomorrow’ RBA minutes release, and Thursday’s Fed-meeting.
    Chinese data disappoints: Of course, the Australian Dollar remain sensitive to the global growth outlook, on top of these two events – especially as it pertains to the Chinese economic narrative. Traders were handed a touch of information on the subject Friday, with the release of the Middle Kingdom’s monthly data-dump. What was revealed was, at best, a mixed picture: Fixed Asset Investment numbers missed, as did Industrial Production data; but Retail Sales beat, and joblessness held steady. For markets, the data was vapid – not good enough to ameliorate the economic outlook, but not bad enough to warrant more economic stimulus – resulting in a dip in Chinese indices.

     
  17. MaxIG
    Market action proves it again: this market hinges on the Fed: The US Fed has proven itself as the most important game in town for traders. The FOMC met this morning, and lo-and-behold: the dovish Fed has proven more dovish than previously thought; the patient Fed has proven more patient that previously thought. Interest rates have remained on hold, but everyone knew that was to be the case today. It was about the dot-plots, the neutral-rate, the economic projections, and the balance sheet run-off. On all accounts, the Fed has downgraded their views on the outlook. And boy, have markets responded. The S&P500 has proven its major-sensitivity to FOMC policy and whipsawed alongside a fall in US Treasury yields, as traders price-in rate cuts from the Fed in the future.

    The US Dollar sends some asset classes into a tizz: The US Dollar has tumbled across the board consequently, pushing gold prices higher. The Australian Dollar, even for all its current unattractiveness, has burst higher, to be trading back toward the 0.7150 mark. Commodity prices, especially those of thriving industrial metals, have also rallied courtesy of the weaker greenback. Emerging market currencies are collectively stronger, too. This is all coming because traders are more-or-less betting that the Fed is at the end of its hiking cycle, and financial conditions will not be constricted by policy-maker intervention. Relatively cheap money will continue to flow, as yields remain depressed, and allow for the (sometimes wonton) risk-taking conditions that markets have grown used to in the past decade.
    Some risk being taken again, though somewhat nervously: The play into risk-assets makes everything sound quite rosy. There are caveats to this, however. And that relates to what’s been inferred about global growth from the Fed’s meeting this morning. Implicitly, at the very least, the Fed has acknowledged that growth in the US and world economy is all but certain to slow-down. It wasn’t said outright – a central banker would never want to be anything less than cautiously optimistic – but the tone of Fed Chair Powell at his presser suggests a Fed that is sufficiently concerned about the global economy that they will definitively reverse its policy “normalization” course. Positivity was maintained by the Fed about US economic conditions, outrightly. However, the market has read between the lines, and it doesn’t like what it sees.
    Interest rates are now expected to be on hold for this cycle: So: although swung around post release, the more important bond market is telling a clearer story. The yield on the US 10 Year Treasuries have tumbled nearly 8 points to 2.53 percent, and the yield on US 2 Year Treasuries has fallen 7 points to 2.39 per cent. More remarkably, the yield on Treasuries with 3, 5- and 7-year maturities have dropped over nine points, creating a yield curve with a very flat belly. Of most concern here is that all of these securities are trading just at, or well below, the Fed’s current effective overnight-cash-rate of 2.40 per cent. Traders are now pricing in a greater than 50 per cent chance the Fed will cut rates by early next year, on the basis of deteriorating economic conditions.

    It’s getting harder for the Fed to get the right balance: The tight rope is getting narrower. For market participants, as always: on one side of it sits the need for accommodative financial conditions, on the other the need for robust growth conditions. It’s the rudimentary in principle, though complicated in practice, interplay between the credit cycle and the business cycle. Out of this Fed meeting, the proverbial tight rope walker is nervously shifting her gaze down towards the economic growth outlook. Powell and his team have apparently not struck the necessary equilibrium in its approach to its policy and communications to the market. Yes (again), risk assets have rallied, but right now, not in such a way that suggests the bulls are significantly more confident in the investment environment being planted before them.
    Other stories also important, though not as much as the Fed: Some of this could be attributed to the overhang coming from some of the other significant economic stories yesterday. Sentiment has been dented by news that key EU figure Donald Tusk may demand that no Brexit extension is granted for the UK; it has also been liver-punched by a story suggesting US President Trump does not necessarily see a lifting of tariffs on China occurring in any US-Sino trade deal. Once more: it does appear that markets have seen the greatest gravitas in the Fed meeting, though. And traders’ nervousness is being betrayed by this: despite a dovish tact, corporate credit spreads have rallied, the VIX is off its multi-year lows, and US Break-evens are revealing greater inflation risk in the US economy.
    Australian markets to be defined by Fed and employment numbers: Fittingly, SPI Futures are suggesting the ASX200 will open somewhere between 5-and-10 points lower this morning. Speaking of markets and the growth outlook, not only will Australian trade be impacted by the fall-out from the Fed’s nervously dovish tilt, we also get some highly anticipated employment figures out this morning. The currency and rates markets will be what to watch for: the themes driving the ASX200 this week is the renewed push in iron ore prices, along with the rotation into yield-driven defensive sectors as Australian ACGB yields tumble. The RBA have hitched their hopes for the Australian economy on a tightening labour market and subsequent lift in wages growth and inflation. Watch therefore today for any major downside miss in employment numbers.
    Written by Kyle Rodda - IG Australia
  18. MaxIG
    Relief-on? It’s a trifle difficult to describe last night’s trade simply. On the surface, risk assets are being reasonably well supported, and there are a few signals suggesting market participants are in a slightly more bullish state of mind. Rather than “risk-on” however, one might describe the last 12 hours in markets as “relief-on”. This is mostly due to the fact that, at least for now, the global bond market rally has stalled. Markets had worked themselves into a frenzy this week, fretting over the meaning and implications of the precipitous run-higher in safe-haven government debt. It sparked all sorts of repositioning and knee-**** activity in markets, pulling price action around its massive gravity, and inspiring a general anti-risk sentiment.
    It’s been the speed, not the direction: The shocking part of the bond market rally – and let’s recall, for the many folk out there who aren’t bond-market buffs, that when bond prices rally, bond yields ¬fall – is not that it is necessarily happening at all. Instead, it is a matter of how quickly it is all happening, and what this rapid shift in momentum means all-in-all. The more benign reasoning is that it’s a basic repositioning, accelerated by technical factors, in response to the dovish turn central bankers have adopted lately across the globe. The direr interpretation, however, was that the swift shift in bond pricing signalled a market pricing in a major economic slow-down, maybe even a recession, in the global economy.

    Markets getting ahead of themselves: Both narratives are interrelated and true to some extent. Interest rates expectations have been sliced-down very quickly recently, courtesy of course, to a marked deterioration in global economic growth conditions. But these things take time: hence, the move in bonds seem disproportionate. This isn’t an invitation to rejoice, by any means. Risks in the long term to the global economic outlook are ample, especially as it relates to Chinese and European growth. But to throw in the towel now on global macro-economic outlook would be premature, and potentially wasteful: the actions of central banks are skewing risk-reward in favour of the risk takers, meaning taking a long bias on certain equity indices ought not to be discounted.
    The risk-reward balance: A skerrick of this view manifested in market activity last night. Wall Street is up and trending higher, just on an intraday basis, into the close. Most certainly, the fall in bond yields, driven by the prospect of looser monetary policy across the globe, is attracting flows into stocks. It's a continuation of the perennial battle in financial markets: the desire to take risk when financial conditions dictate its attractive to do so, versus the desire to preserve capital when the economic growth environment is degrading. Policy makers are fighting hard to engender a confidence that the former can be trusted and will lead to an improvement in the latter.
    Premier Li’s words fire-up traders: Yesterday, and the turnaround in sentiment began here, it was China's policy makers turn to try and settle market participants' nerves. In a speech at the Boao forum, Chinese Premier Li Keqiang outlined his optimistic vision for his nation and stated his belief that the fundamentals of China's economy were inherently sound. He did express that stimulatory measures would be undertaken to address any temporary underperformance in the economy, though avoided pledging major monetary support. However, Premier Li made clear, seemingly in an appeal to his peoples' patriotic fervour and market participants animal spirits, that China's economy is not because of internal problems, but problems that pertain to weakness in the outside world.
    It’s not us, it’s them: It's a popular strategy at-the-moment amongst financial leaders, actually: when having to explain what's causing domestic problems, just blame someone else! It was manifest in Premier Li's speech yesterday. But it was also a feature of ECB President Mario Draghi's recent discussions to the market, as well as that of Fed Chair Jerome Powell. The global economy as we know it is very interconnected, so in some sense there is a kernel of truth in stating that weak economic fundamentals is a function of some external factor. But when the centre of the argument is essentially to just point at the other guy, it comes across less as policy discourse, but more as a Three Stooges ****.

    The end of the month: The positivity inspired by Premier Li’s rallying call looks to have been discounted in the ASX200 yesterday. SPI Futures are pointing only to a very small gain at the open today. High impact news is hard to come by today – a lot of the event risk is loaded into next week now. Brexit drama will maintain relevance, but its impact will be contained to (a presently depreciating) Pound. The stronger greenback is a minor theme to follow: despite weaker US GDP figures, the almighty Dollar has smashed the currency complex and gold prices. To tie everything back into rates and fixed income: we wait to see whether AGBs sell-off too, and whether bets of RBA cuts are tempered, too.
    Written by Kyle Rodda - IG Australia
  19. MaxIG
    Written by Kyle Rodda - IG Australia
    I see red: The global equity rout continued last night, and out to the furthest horizons it was a sea of red. There was very little reprieve no matter where one spun the globe. The Asian session saw China's equity bounce faded again, joining the suffering experienced by the Nikkei, Hang Seng and ASX200; European indices continued their orderly decline, underpinned by a 1.6 per cent drop in the DAX and a 0.76 per cent fall in the FTSE 100; and with less than an hour to trade, Wall Street is clocking losses, led by the Dow Jones, of as much as 2 per cent. The themes aren't wildly different from before, it's just now the story is being read (and bought-into) by a growing mass of traders: global growth is late-cycle, earnings have peaked, and tighter financial conditions means there's no hiding from the risks.

    Seeking shelter: Not that market participants aren't searching for places to hide. The problem is, it would seem, that there aren't too many good places to find shelter. The classic safe-havens were given a good crack overnight: US Treasuries were sought out, giving the US Dollar a boost after several days of declines. Yields on US Treasuries were steady; however, this appears more a function of the residual need to maintain pricing of interest rate expectations. Gold was slightly lower because of the stronger USD alone, as was the EUR/USD, which traded into the 113-handle again, and the Pound, which dropped into the 1.27 handle. Even the Japanese Yen dropped slightly as traders scurried around, though it must be said it is far-off its recent lows.
    The losers: The flip side to the bidding-up of safe-havens was a smack-down of riskier and/or anti-growth assets, of course. The Australian Dollar is trading into the low 0.7200's and the Kiwi Dollar has slipped below 0.68. The Chinese Yuan edged to 6.94 and broader emerging currencies felt the pinch, again. Commodity prices fell on fears of slowing global growth: copper is off (but it did bounce of the day's lows), and of local relevance, iron ore has plunged by over 2 per cent. Bitcoin too has finally exhibited its status as risky and speculative "asset", spiralling further, to just over $US4,500, at time of writing. Credit spreads continue to widen, especially in investment grade corporate bonds, portending sustained weakness in global equity markets.
    Fresh falls for oil: Amid all this selling and search for safety is the conspicuous matter of oil: the black stuff arguably fared worst of all overnight, shedding over 6 per cent. The concerns regarding a massive global over supply continued, as analysts forecast higher inventories and a higher-likelihood that major oil producing countries will prove unable (or unwilling) to collectively cut production. The dynamic has prices of Brent Crude trading at $US62.50, and that of WTI at around $US53.50. Energy stocks were some of the worst performing for the overnight session -- a theme that is expected to persist today –  while the oil sensitive Canadian Dollar fell to 1.33 on fears of a deterioration in that countries terms of trade.

    Less news, more uncertainty: The volatility experienced in just the first two days of the week -- the VIX spiked to about 22 again overnight -- gives further credence to the notion that light data weeks exaggerate price action. It's like existing in a vacuum, whereby a lack of air resistance makes everything move much more swiftly. In good times, this doesn't feel so bad:  it's an excuse to buy, and everyone is mostly happy. However, in this new period of uncertainty, the opposite proves true: less information means fewer opportunities to find certainty and reassurance in data. As such, trading picks up a velocity that exaggerates what might otherwise be tempered movements in markets, spawning vicious cycles where fear feeds and multiplies on more fear.

    ASX yesterday: The ASX200 hasn't been spared from this cycle -- and feels an immediate escape will not be forthcoming. The index fell with far greater force than was anticipated during yesterday's, as the broad-based evacuation from equities persisted. The tech-wreck theme has spilled over into our market: momentum chasers are being washed aside, legging high-multiple growth stocks. It was the IT and healthcare sectors that subsequently experienced some of the highest activity and losses, the culmination of which saw the ASX200 come conspicuously close to the oft-mention support level around 5625, or so. Buyers entered the market at that level, allowing the market to staunch its losses seemingly as bargain hunters searched for value in the large caps. However, it was only enough to curb the session's losses to about 0.4 per cent.
    ASX today: The lead handed to us by Wall Street has SPI futures indicating quite a considerable drop for the ASX200 at today's open of 58 points, or about 1 per cent. If that were to eventuate, support at around 5625 would quickly give way and expose the key-psychological mark of 5600 to a challenge. Considering what’s been witnessed on markets this week, today may once again be a case of what can lose least. The utilities space and other defensive sectors look to be the early favourites for that title, but it may be one that won't be won without sustaining a few battle scars. Given the overnight moves, the materials sector and energy stocks are presenting as the likely biggest losers, with activity in the banks perhaps the uncertain variable considering a bounce in the Big 4 late yesterday.

  20. MaxIG
    Broad-based based bounce in stocks: It was a buy the dip day yesterday, judging by price action in global risk-assets. As has been the theme this week, there wasn’t any meaningful macro-news to change market participants behavior. So: an explanation for the (almost) universally solid day for global equities ought to be chalked-up to internal market mechanics. What this may imply for the longer run is a touch obscure. This market is trading much in the way a plane rights-itself after some brief, but heavy turbulence. Some rough times must surely lie ahead once again, if not for the simple matter that fundamentals haven’t changed. Market participants will therefore remain glued to any developments that may reveal new truths about global growth.

    Very little “new” news: There weren’t any such stories out last night. Outside the echoes of last week’s dovish Fed-tilt, European growth concerns, and talk of inverted yield curves, voices portending doom in financial markets were apparently much quieter. Ever the experts in hindsight, the collective wisdom of market participants seemed more interested in rationalizing away their previously held fears. This could be justified, and at that, telling in and of itself: traders are searching for reason to keep taking risks, and maintaining a bullish temperament. It certainly showed; not just in equities, but other asset classes. Bond yields climbed, at least momentarily ending their rout, and growth-proxy currencies lifted as currency traders sold-out of the popular safe havens.
    US sector map totally green: A criticism levelled at this market is that it’s so preoccupied with macro that it lacks any level of true discernment. Capital is being allocated into equities as a total asset class, ignoring the differing prospects of the varied sectors within equity markets. Case in point, just last night, was the S&P500, which has rallied across the board, on 81 per cent breadth. Of course, different sectors have benefitted more than others, with energy and financials leading the charge, and consumer discretionary and communications trailing the pack. But the general dynamic is clear: no matter where you look, when risk taking is being encouraged by a ubiquitous fall in global bond yields, flows go into equities of all stripes.
    A desire for growth and yield? This behaviour might be best conveyed by the juxtaposing of US tech's recent performance with the US utility sector. It gives a good read on the growth-versus-value dichotomy in equity allocation. On the whole, they've each performed remarkably well in recently -- a phenomenon which, generally, ought not to occur, as market participants either prioritise capital growth or yield. Once again, the catalyst behind this behaviour is probably attributable to fall in global interest rate expectations, as the world's biggest central bank's step away from tightening financial conditions. In short: lower yields in safe assets is fostering a simultaneous search for income from the conservative types, and an excuse to take bigger risks for the more daring types.

    Something has to give: The problem is: the finitude of capital, plus changes in momentum in the market, all but necessitates market behaviour fall one way or the other. And this is where global growth prospects, and it's knock-on implications for earnings, become crucial. A fundamental case to bet big on growth stocks disintegrates when the global economic outlook shows signs of deteriorating. As such, market participants, though not acting on their impulse today, are sticking their fingers in the air to forecast which way the frosty-winds of the global economy are going. For the medium term, the conclusions aren't so good, and that's laying the bedrock for potentially choppy trade as traders attempt to fill the blanks of several prevailing uncertainties.
    Markets hoping for a growth turnaround: But faith is being maintained that central banks may pull a rabbit from the hat and reverse course enough to put equity markets back into a steady, upward trajectory. Amidst no change in fundamentals, judging by yesterday's bounce in global equites, there are enough buyers in the market to take that punt. Apart of the matter, too, is that market participants are being given little choice but to chase risk. The fall in discount rates is luring them into taking on greater risk to achieve their required returns. Hence, even while the slimmest of opportunities exist in the market, until a categorical move towards capital preservation emerges, flow will be sustained and supportive of global equities.
    ASX demonstrating less optimism: As it relates to the ASX200, some late buying on Wall Street has translated into SPI Futures pricing in a flat start for the index today. Early indications are that Australian stocks will go without the broad-based buying that drove Wall Street activity overnight. The slightly stronger Australian Dollar and lift in bond yields will also enervate the market, given much of its recent gains has come courtesy of a fall in both. Energy stocks could be the clear winner today, as oil prices leap to 3-month highs. The overall success of the market probably rests on the financials though. The question is whether a rebound in global yields will override the domestic challenges confronting the financial sector.
    Written by Kyle Rodda - IG Australia
  21. MaxIG
    Wall Street adds to its record-highs: The first day of the financial week has been done and won, and its resulted in another small victory for Wall Street indices. US stocks have added to their record highs overnight, as market participants become increasingly bullish across asset classes. The story wasn’t quite so rosy for markets in other geographies yesterday: Asian equities generally slid amid low activity, while European stocks were positive, yet tepid in their trading. Still, it seems, the one clear bright-light in global financial markets is in the US, with the question once more becoming: how long can this latest bull-run last?
    Momentum picking-up in US equities? There remains a general reluctance from market participants (to use an American idiom) to drink the Kool-Aid in this market. The fundamentals, though solid-enough, don’t seem to justify it entirely. Valuations aren’t stretched, but they are largely as attractive as they are due to discount factors, rather than true earnings growth. Nevertheless, perceptions are shifting, with some of that FOMO-money, long sitting on the sidelines in this rally, apparently making its way into US equities. The great momentum play stocks, are exhibiting some of the behaviour they did during last-years run-up, suggesting a growing exuberance in the market.
    US tech playing catch-up: As one with a clear enough memory may recall, the centre of last year’s flow chasing rallies and busts was the US tech-sector. Perhaps remarkably, and reassuringly for the bulls in the market, although valuations across the S&P500 has crept towards levels reminiscent of October last year, valuations in tech stocks have so far lagged the broader market, this time around. It’s a state of affairs that’s rapidly changing, but using the NASDAQ as the barometer, valuations in US tech, at 35:1 price-to-earnings, is still well below the eye-watering 48:1 and 53:1 P/E ratios registered in October 2018 and December 2017.  

    Treasuries fall, despite no-change to the rate outlook: Another area in which the eagerness to chase risk is manifesting is in the US Treasury market. Bond yields are ticking higher across the curve, without much of a fundamental macro-economic catalyst, as traders sell safe-haven assets to join the equity market rally. US 10 Year Treasury yields climbed around 3 basis points overnight, to trade around 2.52 per cent, and the US 2 Year note’s yield edged 1 point higher. Despite still looking very bent out of shape, the slight steepening of the yield curve speaks of a market increasingly comfortable in the long-term growth outlook for the US economy.

    Global inflation risk generally low: Part of this dynamic can be explained by the actions of the Fed, coupled with the low inflation environment the global economy is apparently mired within. This perception could change quickly, depending on what comes out of Thursday’s US Fed meeting. However, there’s little justification that it ought to, and this was backed-up by yesterday’s key macro-economic release: US PCE inflation figures. That release revealed once more that price growth in the US economy has continued to recede: annualized core inflation is at a stubbornly low 1.6 per cent, implying the Fed possesses little need to return to a rate hike bias.
    Financial conditions supportive; eyes on China today: So, little concern right now exists that financial conditions globally may tighten and strangle the risk-on run. It’s probably in part why the VIX remains so supressed: liquidity isn’t seen to be much of a problem. But though accommodative monetary conditions will continue to underwrite market strength, some semblance of fundamental growth will be required to keep the market-moving forward. And today, the next little leap forward will come in the form of Chinese economic data: the market moving Chinese Manufacturing PMI data is released today, with market-bulls eager to see whether the “rebounding Chinese growth” story still holds merit.
    ASX200 to open lower: The revelations contained within the Chinese Manufacturing PMI numbers will likely be the ASX’s key determinant of activity today, in the absence of any other tier-1 data. Otherwise, Wall Street’s flattish finish, that saw the registering of a new all-time closing high at 2943 for the S&P500, will translate into a 3-point drop at the open for the ASX200, according to the SPI Futures contract. Aside from these two variables, market participants will be keeping an eye out for Australian Private Credit figures this morning; while action in bank shares may also be worth watching, ahead of the half-yearly reports from the ANZ, NAB and Westpac.

    Written by Kyle Rodda - IG Australia
  22. MaxIG
    An uneventful day on Wall Street: A flat, somewhat mixed, and low activity day on Wall Street, market participants seem to be eyeing events later on in the week. After Friday’s Non-Farm Payroll induced rally, traders have apparently looked-down below their feet, realized how far this market has climbed, and decided a fresh-wind is required before scaling to new record-heights. Such a milestone stands only 1-and-a-half per cent away for the S&P500; and sensibly, the market is in no rush to get there. Generally, though, the chatter in the commentariat betrays an overall confidence that the S&P will get there. As has been said a-plenty before: market conditions are looking quite “Goldilocksy”. Only a little more fuel is required to propel US stocks to where bulls wish for them to be.

    A backloaded economic calendar: The reasoning behind the lukewarm day on Wall Street overnight, aside from just being a Monday, is the economic calendar is backloaded this week. There seems to be a reluctance to get ahead of the data; with the preference being to position for it and react to it as it comes. US CPI data and FOMC Minutes will be the releases for US markets, and will, for the bulls, ideally confirm without qualification the Fed’s need to stay-put on interest rates. But Brexit-drama will also be closely monitored, as we creep ever-closer to the April 12 Brexit-deadline; as will the IMF’s economic updates due mid-week, and the ECB’s Monetary Policy meeting, for insights into the global growth outlook.
    Currency traders positioning for event-risk: In contrast to stock-indices, shuffling in currency markets was more pronounced on the litany of macro-headline risk. The central thread to the moves was a fall in the US Dollar, though much of this move came as an extension of positioning in the Euro ahead of Wednesday’s ECB meeting, just as much as it was a positioning for CPI data and FOMC minutes. Growth appetite is generally higher, it must be said though, with commodity currencies, such as the AUD, NZD, CAD, and NOK rising – the latter two owing to a spike in oil prices – and safe havens like the Japanese Yen and Swiss Franc falling.
    US earnings to determine Wall Street’s fate: Looking slightly higher above the fray, and US earnings season is coming-up, and may centre market-participants’ minds a touch. Not that any tremendous surprises are forecast; though earnings growth is expected to have softened a little this past quarter. That much won’t derail markets, and estimates are that a healthier growth in US corporate earnings should return as 2019 unfolds. Only the severest miss in earnings growth would curtail the recent bull-run across the S&P500. And not to mention that, with the US Fed keeping yields and discount rates low, the price-to-earnings ratio across the index remains relatively attractive, while dividend yields are also becoming of greater appeal, too.
    ASX facing domestic headwinds: A similar dynamic could conceivably prevail across the ASX200 in time, though some headwinds might keep momentum subdued. The ASX is showing a high correlation with iron ore prices at-the-moment, as the materials sector underpins the market’s gains. Though welcomed, the rally in iron ore is on shaky ground, given its being driven by supply disruptions rather than global economic growth. There are other areas of upside in the index it must be said: namely in biotech, which has benefitted from the recent turnaround in risk-appetite. However, not to be forgotten, the uncertainty in Australia’s property keeps weighing on the financials sector; as is the global slipping in long-term bond yields, which is keeping upside financial stocks globally limited.
    ASX in the day ahead: Nevertheless, looking just to the day ahead, and SPI Futures are indicating that the ASX200 will open around 8 points higher this morning. A clear indication of where the market might go today is missing currently. It comes on the back of a day which witnessed a very broad-based rally for Australian stocks. Lo-and-behold, it was another big rally in iron prices, and a slight lift in industrial metals generally, that underpinned a run-higher in mining stocks, and the overall ASX200. But breadth, too, was strong overall: 72 per cent of stocks were higher on the day, with the communications and financials sectors the only laggards for the session.
    Oil price rally accelerating: One theme to follow today will be the renewed rally in oil prices to begin the week. Supply-side risks have led the price higher once again; this time, courtesy of internal political instability in Libya. Actual supply disruption is yet to be confirmed, making the spike in prices sensitive to rapid retracement. According to the daily RSI, while upside momentum remains strong, the market is flashing signs of being overbought. However, given the current geopolitical dynamics, ahead of key OPEC meetings this week, future production cuts from major oil producing countries is still being priced-in. The WTI futures curve went into backwardation overnight, reflecting the pricing-in of perceived oil undersupply in the medium term.


    Written by Kyle Rodda - IG Australia
  23. MaxIG
    A week that’s (so far) under-delivered: Anything can happen in the space of 24-hours in financial markets. But as we enter the final day of trade in global markets for the week, activity today is shaping up as being just as tepid as that which we’ve experienced in the week’s first four days. It was hoped some new, market-moving information may have been delivered in what was a back-loaded week. Afterall, there was no shortage of event risk. However, thus far, despite a litany of risk events, many of which yielded positive outcomes, market participants have responded to the stories with a shrug.
    Market fundamentals take priority: Hence, we meander into this Friday having acquired some useful information about the world, but little in market pricing to show for it. It’s been said before (in fact, it’s been said a lot this week): market participants have developed a singular fixation on upcoming US earnings. And perhaps rightly, and comfortingly so: in a world where markets are dominated, even distorted, by macro-drivers and central bank policy, right now, company fundamentals matter more. It may seem trite to suggest so; however, it would be imprudent to underestimate how overwhelmed fundamentals become in a market dominated experimental monetary policy.
    Corporate earnings to be a risk barometer: The matter is now, that with Wall Street perched inches away from record highs, and the world’s other major indices well-off their lows, market participants need evidence to justify such a phenomenon. At that, it goes beyond just a micro-level concern of shareholder earnings. With the major risk to global markets the prospect for an uncomfortable economic slow-down, the forward guidance provided by US corporates will be used to form an abstract story for macroeconomic outlook. Market participants know that in the short term, the current state-of-affairs is unfavourable; what the bulls wish to see now is evidence of strength in the long-term.

    When the micro becomes the macro: A such, the micro-matters become important for macro-watchers, too. Arguably, this week has proven that, in a reversal of the status quo, micro-concerns have superseded those of its overbearing bigger-brother. The state-of-play now is markets have practically discounted fully the 4-and-a-half per cent fall in earnings growth projected by analysts for the quarter. What matters now is how future guidance is modified in response to the commentary and financials put forward by corporates. If that becomes downgraded out of earnings season, too, then Wall Street’s, and global equities big V-shaped recovery may come into question.
    A faith in the market’s high priests: The bar is still set quite high, with a nearly 7 per cent rebound in earnings on a quarterly basis expected come next quarter. This will come seemingly without a major boost to corporate America’s top line. Much of the rosiness in this outlook is embedded within a hope, however reasonable, that the recent monetary-dovishness and fiscal intervention from some major economic players will reignite global growth. From the Fed’s dovishness, ECB’s return to a completely neutral policy bias, and massive fiscal intervention from China’s government and PBOC, the concerted efforts of policymakers are expected to succeed in turning global growth around.
    Bonds recalibrating to growth expectations: Market participants are more optimistic that the worst of the turbulence experienced in the global economy in Q1 is behind us. That’s being revealed in a recalibrating in global bond markets, in response to some reasonable economic data. US Treasury yields are lifting across the curve, following the face-ripping rally in bond markets only a fortnight ago, in response to a tempering of expectations of monetary policy easing by the US Federal Reserve. Though the next move from the Fed is expected to be a cut, the odds this will happen before the end of the year is now about 50/50.

    What will the impact be on the ASX? The correlation between the ASX200 and S&P500 isn’t terribly strong. SPI Futures are betraying this today: the S&P closed flat today, but the ASX200 ought to open 21 points higher. The local share-market has traded on its own themes of late, ranging from the oft-cited lift in iron ore prices, and the weakness in bank stocks in response to local property market weakness. Global growth remains a sensitive-point for the ASX, nevertheless, with the chances the bifurcation in Australian and US markets possible enough in the situation that US reporting season surprises to the upside or downside.
    Written by Kyle Rodda- IG Australia
  24. MaxIG
    Traders see “goldilocks” conditions in US: Both European and US shares rallied overnight. For the latter, the term “goldilocks” has been bandied around. That is: growth in the US, though not as strong as it has been in the recent past, is still solid, while inflation risk is presently low, meaning the US Fed will likely remain in a neutral position. A reminder of this dynamic came in the second of two major inflation releases out of the US this week. PPI data showed a weaker than expected print, following the night prior’s soft CPI numbers. The effect has been static bond yields, a slight lift in the prospects of a US rate cut this year, and a US Dollar that has pulled-back from its highs.
    US stocks fail to jump significant hurdle again: Perhaps most significantly for those with a bullish disposition, US equities have responded to the “goldilocks” dynamic in the most enthusiastic way. Once again, the S&P500 has challenged crucial resistance at 2815 – that notorious level at which the market has broken down on nearly four-or-five occasions in the past. Promisingly, as it applies to last night’s trade, the sector responsible for driving the S&P500’s gains is information technology – primarily Microsoft and Apple Inc. Recall, it was the en masse dumping of the tech-giants that led US stocks lower in Q4 last year. It’s hope that their continued recovery may be a bellwether, for the bulls, of further upside to come.

    Green-shoots in commodities? It wasn’t only equites engendering a sense of hope for the global growth outlook in the last 24 hours. Arguably a more reliable indicator, global commodity prices registered noteworthy gains. The weaker US Dollar undoubtedly supported this, but it alone does not explain the broad-based strength across the commodities complex. Perhaps it’s just another part of the small snap back we’ve seen in markets since the de-escalation in trade-war tensions. An edging higher in the price of oil, after a contraction in US inventories last night, has been supportive too. Nevertheless, although a major break-out in commodity prices are yet to occur, the reversal in its downward trend has some suggesting these are green-shoots for the global economy.
    Asian markets had a soggy day: To localize the focus, the ASX200, in line with the other major regional equity indices, closed well into the red during yesterday’s Asian session. It seemed it was one of those days where the market’s behaviour was a trifle inexplicable. The lead handed to Asian markets was solid enough, nor were there were any major tier-1 economic announces to undermine sentiment. Some indicated that it might have been comments from the night prior by US trade representative Robert Lighthizer that US tariffs on China remain a possibility. This answer isn’t satisfactory, however: the comments were made in the US session and caused little reaction then. Maybe yesterday’s weakness could be chalked-up to the market simply having a soggy day.
    ASX200 to open higher this morning: Regardless, the tide looks likely to turn again this morning. SPI futures are indicating a 20-point jump at the open for the ASX200. What appetite there is for risk will be curious today. As mentioned, despite ample fodder a little upside yesterday, especially in growth and cyclical stocks, trade was defined by a languid rotation into defensive sectors. The phenomenon may well be attributed to the morning’s Westpac Consumer Sentiment reading. It showed a major fall in sentiment, resulting in a major tumble in Australian Commonwealth Government Bond yields. Though certainly a positive for yield-stocks, the fall in 10 Year ACGBs portends a meaningful slow down in domestic economic, and the likely necessity for RBA cuts as soon as August.
    The monthly Chinese data-dump: Traders will get another opportunity to refine their views on global growth today: it's that time of the month when markets receive the big Chinese economic data dump. The bar was set last week during China's National People's Congress, as Chinese policymakers downgraded their growth targets, and announced a slew of fiscal and monetary measures aimed at supporting their economy. As it relates to Australian markets, two of today's prints stand-out as being most relevant: the industrial production, and retails sales numbers. They may prove significant for the AUD: as yields fall in AUD denominated assets, the yield disadvantage the AUD has against the USD grows, making the currency more vulnerable to data surprises and downside risk.
    Brexit: Round to 2 of 3: The headline story today has been round 2 of 3 in this week’s Brexit-battle in the UK House of Commons. This morning’s vote was to decide whether to move ahead with a “no-deal” Brexit. By a narrow margin, the House voted against “no-deal”, setting up another vote tomorrow on whether to extend Article 50 and delay the March 29 deadline. There has been a lot of drama this morning, and the **** is certainly in the detail, especially as it pertains to Theresa May’s authority. But as far as financial markets go, the simple fact is this: the Pound has rallied, equally against the EUR as the USD, as traders bet on a delay, if not a reversal, of Brexit.

    Written by Kyle Rodda - IG Australia
  25. MaxIG
    Markets trade thin ahead of central bank risks: It’s said that money makes the world go around. And given central bankers control the money of the world, it is they who decide when the turning starts and stops. Described this way, central bankers role in the economy sounds Bond-villain-esque. That’s entirely unfair of course – only fringe-dwellers would suggest they are so malevolent. But recent history, based on experiential evidence, suggests that when it comes to financial markets, the actions of central bankers take primacy over all other considerations. This phenomenon must be a transient thing – a part of some other historical process. All high priests eventually lose their power. For now, though, it feels the age of the central-banker has reached its epoch, with markets dutifully obeying their rule.
    Markets pace the margins: The reason for the foregoing expatiation is that financial markets, owing to a dearth of economic and corporate data, have traded quietly in anticipation of several key central bank meetings this week. Naturally, the biggest of them all is Thursday morning’s US Federal Reserve meeting. In preparation for the event, traders are pacing the markets’ fringes. Risk appetite on Wall Street is still rather well supported. Volumes are below average but having broken key-resistance at 2815 on Friday, the clearing of that technical level has invited in some buyers. Rates markets are largely unchanged, although US bond yields have ticked slightly higher across the board, while the US Dollar is relatively steady, albeit well off its recent highs.
    RBA-Minutes released today: An expounding of the internal dynamics of US financial markets ahead of this week’s US Fed meeting is for another day. For the moment, it’s simply handy to know that it’s market participants’ major mental block. Localizing the focus, Australian traders and market-watchers are preparing for their own dose of central bank news. This afternoon welcomes the release of the RBA’s Monetary Policy Minutes for its March meeting. Few surprises are expected out of today’s release, it must be stated (what’s new when it comes to the RBA?) The market impact, consequently, may prove negligible, aside from a move of a few pips here and there on the Aussie-Dollar crosses, and maybe a shift in the yield of ACGBs.
    Themes to watch from the RBA: Nevertheless, for econo-watchers, some familiar themes will be searched-for as today’s minutes are perused. Probably given we are coming up to an election, several economic pressure points have become of greater relevance. House prices are the perennial favourite, especially as it relates to their fall and the so-called “wealth effect” on consumer behaviour. The other to watch-out for pertains to the latest political hot-topic: wages growth. Namely: when (and perhaps, more appropriately, if) adequate growth in wages will materialize. The final key theme to which analysts will be centring their attention on is the labour market outlook, considering a further tightening in it has become the RBA’s proposed panacea to the two other issues, and all their insidious knock-on effects.
    Negligible reaction to RBA Minutes is expected: Whatever the RBA's chosen tact in their minutes, it's probable that few answers will be handed from up high today. In an act of what might be considered economic blasphemy, markets participants have grown increasingly cynical of the RBA's outright, "neutral” stance on the Australian economy. Markets are still pricing in approximately 34 basis points of cuts from the RBA this year – with the first cut fully implied by August. Despite this, and although yields on Australian Dollar denominated assets are trending firmly lower, the local currency, courtesy of a lift in the price of key commodity exports, is trading resiliently, clinging onto the 0.7100 handle at present.

    Can commodity rallying prices save the day again? Ever the lucky country, policy makers and politicians alike will be praying this dynamic in the commodity complex lasts. Indirectly, the lift in Australia's terms of trade may be what drives the economy through its current "crosswinds” and keeps the RBA from having to cut interest rates in an already unstable and debt-laden environment. The simple logic is this: the greater tax revenues drawn from a lift in commodity prices will help build a war-chest for the Pollies to play-with, in a bid to win over the electorate with greater tax cuts and spending programs. Undoubtedly, this state of affairs comes with the risk of profligacy. Nonetheless, sensible, stimulatory policy could yet save the economy from the next recession.
    ASX searching for a lead to move higher: In the narrow context of today's trade, the ASX200 ought not be affected by this broader hope of future fiscal stimulus for the Australian economy. Wall Street has rallied into its close: the S&P500 has climbed 0.37 per cent for the session. SPI Futures have lifted by virtue of this, indicating a 20-point jump for the ASX200 this morning. That’s proven an unreliable indicator of late, however. For the last week has a rally in SPI futures contract translated into meaningful gains in the cash market. As alluded to Australian-macro currently is all about commodity prices. Materials stocks led the charge yesterday, and the same may go today, with iron ore prices in particular making a fresh run higher.

    Written by Kyle Rodda - IG Australia
     
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