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MaxIG

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Blog Entries posted by MaxIG

  1. MaxIG
    Today was a good day: The term risk-on can be a little overused in financial markets at times. When short-on-time, and confronted with something complex, suggesting it’s been a “risk-on” or “risk-day” is a simple way to say market participants feel pretty good. At the risk of oversimplifying: the first day of the new quarter was certainly a “risk-on” day. It’s likely given the context of yesterday’s trade that makes this so. Concerns about a global economic slowdown have been their most sensitive in years. So: to receive a handful of better than expected economic data, such as we did in the last 24 hours, it makes things in the whole appear much better than if they were to be judged just in the particular. 
    The story has changed (for now): It’s probably a part of that compulsion market participants have – pundits especially – to infer a trend from a tiny-bit of information. The justification is reasonable enough: most people understand the world through stories, rather than hard-data and analysis. To take a piece of information, infer a trend, and then tell a story with it is far more comprehensive (and saleable) than just enumerating some soul-less facts. It’s with this (partial) assumption in mind, the first day of the new week, month and quarter can be viewed. For all its intricacies, complexities and ambiguities, it was the most “risk-on” day we’ve seen in a short-while; and the hope is now that this is the beginning of a significant reversal in trend.
    The truisms hold: Maybe another reason why dubbing price action yesterday this way is that it lived-up to so many old market axioms. Ironically enough, in these situations, the coming-true of absolute, self-evident truths about the world are comparatively rare. More-often than not, it’s more common to find an exception to the rule than to observe clear evidence for the rule itself. But truly yesterday, all but a few of the hackneyed judgements about markets materialized. Stocks ubiquitously rallied, with the S&P500 eyeing new highs. Bond yields are recovering ground after their recent tumbles. Commodities were generally higher, though (of course) gold was down. And growth currencies rallied, with the Japanese Yen leading the G10 laggards.
    The focus on China and America: A little description, a re-cap if you will, of the data that drove this price action is definitely warranted. And here, this could be evidence of market participants’ collective desire to simplify and cherry-pick information. Markets were swept up in the hope and positivity of a series of PMI releases on Monday. There were many of them released, amongst other high-impact economic data. However, two stood out as the drivers of risk-sentiment. The most important was Chinese Caixin PMI numbers, which validated the weekend’s “official” figures, and showed an expansionary print in that metric. The second most was US ISM PMI numbers, which delivered a robust print itself, beating economists consensus forecasts, too.
    Counter-evidence ignored: The narrative formed out of this couple of economic releases was relatively simple: two forward looking indicators for the world’s two biggest economies came-out strong; growth in the global economy therefore could be stabilizing. This general mode of thinking overnight inspired the so-called “risk-on” day; and proved cogent enough for other contradictory data to be ignored. Because all-in-all, the balance of data released – the first lot in a mountain of data to be released this week – was probably fairly mixed. European PMI numbers and CPI figures were printed, and dramatically underwhelmed again; while US Retail Sales figures greatly undershot forecasts, conveying a contraction in consumption in the US last month.

    Australia to follow the leader: Nevertheless, unsurprisingly, the ASX200 appears set to follow the risk-on theme this morning and jump in excess of 30 points at today’s open. It’s going be a massive day for Australian-econ-watchers; and may market participants too. Quite reasonably, it could be argued that, on paper, it’s the biggest day of Australia’s financial-year. This afternoon we get the RBA’s monthly meeting, at which the central bank will most certainly be keeping interest rates on hold. Then tonight, in what could prove a pre-election manifesto from the Coalition Government, the annual Federal Budget is presented before Parliament, with the prevailing view being that it will be loaded with spending and other sweeteners to win-over members of the electorate.
    Framing the day: As far as the RBA goes, the key point to watch for is whether, following the RBNZ last week, the central bank makes a decisive dovish pivot in its outlook for Australian interest rates. That is: it falls in line with market expectations and adopts a rate-cutting bias. When it comes to the Federal budget, it will be judged by what extent proposed spending measures will help stimulate a softening domestic economy. The Australian economic outlook has remained reasonably strong lately is an improvement in the terms of trade, led by a fortuitous climb in commodity prices. Tonight’s budget will be judged by how the income from that phenomenon is redistributed to households, to reboot ailing domestic consumption.

    Written by Kyle Rodda - IG Australia
     
  2. MaxIG
    Another trade-war headline downs sentiment: There’s some news floating through the wires that sentiment has taken a hit overnight courtesy of some unfavourable trade-war headlines. It’s been reported that Chinese officials aren’t co-operating with their US counterparts, as it applies to certain sensitive elements of trade-negotiations. The S&P500, which had been developing some intraday momentum prior to the release, has retraced throughout trade, consequent to the news. It’s closed flat for the day, but despite this fall, moves in rates and bond markets suggest the fundamentals currently remain the same. The all-important balance between financial conditions and growth expectations is still there, ultimately supporting the bullishly inclined, as markets now prepare for tomorrow morning’s meeting of the US Federal Reserve.

    The unresolvable issues: It’s perhaps an assumption alone, but the (very vague) report leaked to the market about trade negotiations surely pertains to one of the well-understood, seemingly intractable issues embroiling the US and China. Those, at its core, unrelated to economics, but to strategic, and somewhat philosophical differences. These are intellectual property theft, currency manipulation, and Chinese military posturing in the Asian region – especially the South China Sea. These differences are relevant because they boil down to brutal power-politics, and an essential clash of ideologies. This isn’t to suggest a trade-deal, and future bilateral cooperation can’t exist between both parties; but that whatever deal is struck, it’s unlikely to put an end to geopolitical tensions.
    A trade-deal is still expected: Overall, the short-term economic stress placed on the US and (especially) China will probably force both countries to arrive at some sort of deal, eventually. Markets will benefit from that – and in a sense, they have already priced that outcome in. Industrial metals are the possibly the best harbinger of this: Dr. Copper, amongst others, still looks poised for upside. Assuming this to be so, the question likely to be asked is something like: “what’s next after a trade deal?”. This is where a degree of doubt creeps into analysts minds. It appears unlikely a satisfactory, elegant agreement will be struck between the US and China on this front. There’s too many zero-sum games; with rudimentary differences in world-view making co-operation complicated.

    Power-politics won’t stop with a deal: The desire of one state to take a greater share of a finite amount of power is quite comprehensible to most. The behaviour is primal – an instinct everyone and everything seemingly possesses in some way. It manifests between individuals, just as much as it does between groups and nation states. Market participants generally understand this, and factor this in to their views. What seems to be missed sometimes is how inherently different perceptions of the world, when analysing the outward expression of power-politics, exacerbates conflict between nation-states. As market participants, though justifiably not the greatest priority, an appreciation of this dynamic is required, if nothing else to build an accurate view on how market activity may evolve.
    A fundamental difference in philosophy: In the instance of the US-China conflict, some liberal, America ideals disagree with some collectivist, Chinese ideals. In the West, we tend to project our cultural motives onto China, and infer meaning from their behaviour from there. This leads to false conclusions and confusion. The best example of this is the way intellectual property is viewed. Although Communist only in name – State-Capitalist, quasi-Stalinism is probably more accurate – the Chinese assessment of intellectual property, and how intellectual property should be treated, betrays the difference in belief between the US and China. Accusations of intellectual property theft, and the subsequent denials thereof, are met with moral objections, resulting in a situation where necessary presuppositions to start productive negotiations struggle to be established.
    China’s bid for supremacy in the information age: How can one privatize an idea? Isn’t a communicable idea itself a common good? Probably too crudely put, this (perceived) issue with American capitalism can be articulated. As an aside, these questions go well beyond the US-China trade negotiations and can be found in the way businesses have struggled to monetize ideas in the age of free, sharable information. As it relates to the trade-war though, notice the conspicuous absence of talk about the China 2025 plan from China’s political-elite. It was founded on the objective of becoming the world’s leading tech-powerhouse in a decade’s time. While still clearly the goal of policymakers, the sensitivity of IP issues has meant that document, in a public sense, has been quietly shelved.
    ASX probably needs a trade-resolution: Australia is in an invidious position, as is well known, when it comes to the trade-war. We are stuck balancing the interests of our military and ideological bedfellow on one hand; and the manufacturer of our warm economic safety blanket on the other. Australian market participants keenly wait for a trade-deal and hope for a de-escalation in the strategic tensions. This morning, last night’s trade war noise has reduced the gains implied by the SPI Futures contract to 7 points. We await some substantial develops in trade negotiations and the Chinese economic story before the bulls reclaim control of the market. The ASX has tracked sideways recently after all, only supported by a lucky run higher in iron ore prices, and a fall in interest rate expectations.
    Written by Kyle Rodda - IG Australia
  3. MaxIG
    Traders have plenty to catch up on: As one might expect after (effectively) four days-off, there’s plenty of macro-economic news for Australian market participants to catch-up on following the Easter-holiday break. Chinese and Japanese markets have traded without interruption; while the US jumped back in to action overnight. And although price action won’t be the cause of any conniptions across trading floors this morning, there’s still enough information there to inspire a few novel ideas in the minds of traders. It will be this digesting of old news that will be the most significant determinant of market activity this morning: the corporate and economic calendars are rather bare to begin the week.
    Stocks tread water as US earnings news pauses: SPI Futures are pointing to a very modest jump for the ASX200 this morning of 5-points, after a more-or-less flat session on Wall Street. The S&P500 added a paltry 2-points, or-so, during North American trade, as the steady flow of corporate earnings that began last week was suspended for the holiday-break. The relative lull in price action speaks-of a market primarily preoccupied with company earnings – despite ample market moving news impacting individuals market sectors. As has been said before: traders are searching for validation from US corporates that earnings, along with global growth, can be expected to turnaround. 
    Data supports US economic outlook: To an extent, such a view is being priced-in marginally, at least as it applies to the US economic growth. US GDP figures will punctuate the end of this week’s trade; but in the lead-up, rates and bond markets have been slightly upgrading their outlook for US growth. Much of this centred on the US Retail Sales print last Thursday night, which surprised considerably to the upside, and alleviated some of the concerns relating to the state of the American consumer. After March and early April’s rally, US Treasuries are retracing their gains, as traders moderate their bets of cuts from the US Federal Reserve.
    Bond yields lift on hopes for global growth: Currently, the 10 Year US Treasury note is yielding just shy of 2.59 per cent – up significantly from the March low of 2.36 per cent. Moreover, the implied probabilities of a rate-cut from the US Fed before the end of 2019 has fallen from an almost 80 per cent chance, to a 50-50 proposition as it currently stands. The factors driving yields in US Treasuries haven’t quite translated equally into other safe-haven government bonds: though higher, weak European manufacturing PMI numbers last week have weighed on German Bunds, while soft UK inflation numbers last week have kept UK Gilt yields in check.
    US Dollar maintains a bullish bias: Naturally, the outperformance of US Treasury yields relative to government debt of similar quality has lifted the US Dollar. Albeit still its end of February highs, the US Dollar Index tested 97.50 during Friday night’s trade, as traders backed out of the Euro and Pound. The combination of a strong US Dollar and generally higher global bond yields has legged gold prices, which broke and held below significant support/resistance at $1280 per ounce. Of course, the stronger greenback hasn’t spared our Australian Dollar, with the local unit abandoning its “growth-proxy” and iron-ore price led rally, to trade back in-line with yield differentials.

    Chinese policymakers to temper stimulus: As far as the Aussie-Dollar, and other global-growth exposed assets goes, upside momentum has been dulled over the weekend, on decreased expectations of future Chinese monetary stimulus. The dynamic can be witnessed in Chinese equities, too, which shed over 2.24 per cent yesterday. Illustrating well the modern central bankers’ essential-dilemma: Chinese stocks pulled-back, and their bond yields climbed, on news that China’s policymakers will likely temper the extent of their stimulus efforts in response to improvement’s macro-economic fundamentals. The tight-rope walk raises the possibility once more of volatility in China’s markets, as policymakers balance the need for short-term stimulus, with necessary long-term structural reforms.
    Oil prices rally on Iran sanctions: The final development worth being wary of from the long weekend’s market news-flow was action in oil markets. Prices have rallied in response to news that the US would be ending waivers to other oil importing nations purchasing Iranian oil. Already in a steady upward trajectory courtesy of managed production cuts from OPEC, the price of Brent Crude has spiked 3 per cent, lifting stocks in the US energy sector overnight. Of greater import, so to speak, to market participants is the impact oil’s rally may have on global interest rates, as traders ponder the potential impacts of higher energy prices on future inflation.

    Written by Kyle Rodda - IG Australia
  4. MaxIG
    Global growth the primary issue right now: The monumental tug-of war between improving financial conditions and deteriorating economic conditions continues. On Friday, it was the latter that took home the points, if only this time around. Both variables truly sit diametrically opposed, and as far as market participants are concerned, which force will prevail remains speculative. It’s written into the mixed-messages markets have been signalling in the last several weeks. It must be said, with the end of last week’s trade, such discrepancies are becoming less pronounced. The dominating concern pertains to the outlook for global economic growth. The world economy’s health is looking worse than previously imagined, and the re-introduction of dovish rhetoric from global central bankers is proving an inadequate remedy.
    European growth (seemingly) imploding: A crumbling of European economic growth prospects is at the epicentre of concerns. European PMI numbers were released on Friday night, and they were shocking. As has been the trend of late, the services element of the data releases were respectable enough. But manufacturing PMI in Europe is falling off a cliff and has dropped well into “contractionary” territory. Most troubling, is that the core of this is apparently being driven by weakness in Europe’s power-house economy, Germany. Remembering 50 is a neutral print when it comes to PMI data: German Manufacturing PMI printed a woeful 44.7. It’s a reminder that with all the risks plaguing the global economy from East-to-West, its Europe that’s stuck in the middle of it all.
    A return to a negative-yield world: The consequences of the bad PMI numbers were immediate and explicit. The yield on 10 Year German Bunds raced to its ignominious and long-awaited milestone, cracking into negative yield for the first time since mid-2016. If there is any evidence necessary that the global economy is at the end of a cycle, it’s that ****-bit of information. The rush into government bonds on Friday was ubiquitous, however, and has created some worrying price action. Conspicuously, the rush into US Treasuries has put the yield US 10 Year Treasuries to just above the current US OCR at 2.40 per cent. Furthermore, Japanese Bond Yields have travelled further into negative territory itself, with the 10 Year JGB yielding -0.08 per cent. 

    Currency traders seek-out JPY and USD: Reactions in currency markets have been somewhat predictable. The Euro has been slapped down below the 1.13 handle, as traders seek their safety primarily in the Japanese Yen, but also the US Dollar. The Greenback spiked to end last week, edging once more well into the 96 handle, according to the DXY. The CAD, NZD and Australian Dollar are also down, however perhaps not by as much as circumstances ought to dictate. The Scandi currencies are also mixed because of Europe's woes, as is the Swiss Franc, despite its status as safe-haven. And even in the face of US Dollar strength, the growing list of safe-securities delivering negative yield has supported the appeal of Gold, which is fetching $1315 per ounce.
    Rate cuts being priced-in across the globe: The falling yield environment is, of course, being driven by a pricing-in interest rate cuts in developed economies the world-over. Though directly caught in the fray on this occasion, as far as the disappointing data goes, the materialising prospecting of weak global demand has seen traders boost their bets on a US rate cut in the next 12 months. The implied probability of a cut from the US Federal Reserve by January next year leapt to almost 80 per cent. The price action has led to a disturbing event in rates markets: the spread between 3 Year and 10 Year Treasuries has fallen to 0 basis points, inverting the yield curve between those two maturities.

    Recession risk considered to be higher: Although not an infallible indicator, such a signal is often cited as portending a recession in the not-too-distant future. It might be for this reason that despite the pricing in on Friday of more activist central bank's globally, equities were generally thumped. The S&P500 was down 1.90 per cent, dragged lower by stocks in the US tech-sector. Of maybe greater concern was the more domestic growth sensitive, small-cap Russell 2000 index: it fell by quite a remarkable 3.62 per cent on Friday.  This lead sets up the Asian region for a tough start to the week. SPI Futures are indicating the ASX200 will clock a 50-point loss at the opening this morning.
    Trump and May to seize focus today: Unfortunately, too, the economic calendar today and (relatively speaking) the rest of the week, is looking quite empty. Inferring from what was dominating the financial press over the weekend, it will be politics on both sides of the Atlantic that will capture attention. Brexit rolls on, and volatility in the Pound is expected to rise as noises about UK PM Theresa May's leadership rises to a cacophony. And out this morning: early days, but Robert Mueller's report on collusion between the campaign team of US President Trump and the Russian Government during the 2016 US Presidential has found no conclusive evidence to support that allegation.
    Written by Kyle Rodda - IG Australia
  5. MaxIG
    Markets trade-off Friday overhang: Markets traded in something of a vacuum Monday. The themes driving price action were more-or-less those that had determined activity to end last week. The effects of this were pronounced in the Asian session, but much less so in Europe and North America. It stands to reason: Asian markets were still to digest Friday night’s abysmal European PMI figures. That data’s impact is still rippling through the market. Anxieties about global growth and the likelihood for a global recession is the topic of the day. But the material losses stemming from these concerns, though broad-based, have been limited overnight. Wall Street is down but bouncing; European stocks were down; while futures contracts for Asian markets are mixed.
    Risk-off generally prevails: Fear is demonstrably higher. On balance, safety was generally sought on Monday. In something of a bittersweet development, the VIX has pulled of its lows, to trade above 16, as traders reprice volatility and risk. In the broader G10 currency complex, the Yen has been led the pack, though its rally has steadied, and it is currently shuffling around the 110-handle. Investment grade credit spreads have widened notably, as speculation about slower growth has fanned-fear regarding the massive US corporate debt burden. And finally, the overnight-drop in the US Dollar, combined with the ubiquitous disappearance of safe-yielding assets the world-over, has pushed gold prices to $US1322 per ounce.

    Sentiment balances out slightly: A sliver of relief made its way into market participants psyche overnight. Some positive German data helped traders decompress – the bears were made to take a backwards step. Perhaps fortunately for the bulls in hindsight, the lack of major data releases removed the risk of fuel being added to the fire of bearish sentiment yesterday. The business-media cycle primarily concerned itself with interpreting the meaning of an inversion in the yield curve between the 3-year and 10-year US Treasury note. The conclusion sensibly arrived at, after making it through the hysterical headlines, is that no one piece of information tells the whole story; and even if it did, this ****-bit suggests (historically) a recession is still over a year away.
    Global growth to remain central question for now: This isn’t to suggest that the global growth outlook ought not to be taken as a big-risk presently. It is, and it’s being digested by market participants meticulously. Naturally, equities aren’t showing it that much, but the unfolding dynamic in bond markets, which has recently seen global yields tumble to multi-year lows, is still in motion. The momentum behind this move diminished slightly last night, leading some to call for a bit of a snap-back in the very short term. However, the trend is firmly in place: yields are falling the world over as traders position themselves for the combined effects of a deterioration in economic activity, and subsequent interest rate cuts from the world’s biggest central banks.
    Australian bonds rally: Such an appetite for relatively safe bonds manifested in our own markets, too. There was a sale of 5 Year AGBs, and the demand for the asset conveyed market participants desire for capital preservation. The bid-to-cover ratio out of the auction was a significant 5.61. Aussie bonds have, in a world where government debt is outperforming short term, seen some of the greatest in-flows of late. Catching-up with risk-off sentiment that had plagued markets, yields on AGBs tumbled during yesterday’s trade. Most noteworthy was the activity in the 10 Year security: it’s yield fell nearly 8 seven basis points to a record low 1.77 per cent.

    Australian Dollar: resilience and a little luck: Despite the fall in yields on Australian Dollar denominated bonds, at least in the last 24 hours, the Australian Dollar has made its way modestly higher. The “little battler” as its affectionately known has lived up to its reputation recently, managing to hold itself above the 0.7000 handle, even in light of the mounting risk to global economic activity. The primary reasoning behind this has been twofold. First, the yield spread between US Treasuries and AGBs has actually narrowed, as traders price in a US economy increasingly inhibited by the slowdown in global economic growth. Second, the (perhaps) fortuitous lift in iron ore prices, courtesy of persistent fears about production and supply of that commodity.
    Defensive sectors loom as potential leaders: It’s unlikely that plain luck will keep the ASX200 sustained. A settling of fundamentals is required for that to be achieved. That’s problematic, too: given the dearth of information the world over, the ASX will be reaching for global leads to add to its recent gains. Just for today: SPI Futures are indicating that the ASX200 will open about 8 points higher, as Wall Street stages a quick dash higher into its close. The bulls will be hoping for a bounce today, but judging by US markets’ lead, it’s a bit tough to see where that may come from. A defensive rotation was at play in the S&P500, so chances are a play into yield stocks will be the theme today.
    Written by Kyle Rodda - IG Australia
  6. MaxIG
    The see-sawing market: The one-day-up, one-day-down pattern of trade on Wall Street continues. It’s playing-out so elegantly, it’s almost absurd. Yesterday was a “down” day, as market participants evacuated equity markets to seek shelter in safe-haven government bonds. In contrast to the day prior, breadth has been universally low, with practically every sector in the S&P500 trading lower. The same simple binary that’s driven market activity for weeks is behind this dynamic: a competition between fears regarding the slowing global growth outlook, and the appeal of risk taking in a financial market environment plagues by tumbling yields. The pattern is showing few signs of abating and speaks of a market that is consolidating before a clearer-cut direction is formed.

    Asia set for mixed trade again: Wall Street’s lead is manifesting as a mixed-picture for Asian markets today, according to futures. Provided this materializes, it will be an extension of the region’s equities own theme. Yesterday’s trade was tepid for Asia too, resulting in an ultimately flat day for the ASX200, a solid day for Chinese and Hong Kong markets, and soft day for the Nikkei. As it presently trades, SPI Futures are suggesting that the ASX200 will open slightly lower this morning, if not flat; as will the Hang Seng and Nikkei; but the CSI300 ought to open a touch higher – though this is based on a future’s price that reflects price action from yesterday evening’s trade.
    Clutching for clarity: Given the overall soft-day for Wall Street stocks, combined with what’s expected to be a more-or-less flat start for the ASX200, the themes to follow for the day are currently a little obscure. After a stabilization in bond yields in the day prior’s trade, the financials sector kept the ASX200 in the green yesterday. For one, it’s an upside-drive that may go missing today, as global financials stocks pullback courtesy of another tumble in yields. Iron ore prices are down, but industrial metals are collectively higher, implying the macro-picture won’t be the key determinant behind the material’s sector trade today. Oil prices are also lower after a bigger than expected build in US crude inventories, boding poorly for energy stocks.
    Markets’ missing momentum: The defensive sectors may have another day in the sun instead. After the aforementioned bounce in bond yields, utilities were the laggard in yesterday’s trade, trading 1.34 per cent lower on 0 per cent breadth. Nevertheless, even some intraday rotation within the ASX200 will give little catalyst to spark a run higher in the index. Like many stock indices the world-over presently, the market has become mired by slowing momentum. Market internals haven’t been over-stretched by a great measure of late, but right now, they are showing a market missing real enthusiastic sentiment. It could mean a pause, before another run, or a brief pullback is coming. Positioning according to the pull/call ratio is neutral, however trending lower.

    Weaker AUD supporting stocks: One saving grace for the ASX200 is the weaker Australian Dollar, which took another dive yesterday. Having crept higher in recent weeks, the AUD was floored yesterday, after the RBNZ, during their monetary policy meeting, took a much more dovish stance than expected. They stated their expectation that their next move would be to cut rates. The Kiwi-Dollar got flogged and the Aussie-Dollar chased it lower, as markets not only increased bets of an imminent interest rate cut from the RBNZ, but also the RBA. The dive in the currency was ultimately the key driver of the modest gain registered by the ASX200 yesterday: and once again may be required today to see further short-term upside for the index.
    What it sounds like when doves cry: The RBNZ joining the growing party of central bank speakers talking-down economic prospects was the likely cause of yesterday’s run into government bonds. That, as well as a speech from ECB President Mario Draghi, in which he expressed his pessimism about hitting that central bank’s inflation target. German Bund yields swan-dived last night consequently, with the 10 Year Bund yield falling to -0.08 per cent – below that of its JGB equivalent for the first time in several years. US 10 Year Treasuries fell again below the Federal Funds rate at 2.4 per cent, as markets price in nearly 1-and-a-half interest rate cuts from the US Federal Reserve before January 2020.
    May maybe about to call it a day: The Sterling proved resistant to this tide in the G10 currency complex overnight, trading on further Brexit developments instead. The Cable climbed on news that UK PM Theresa May would tender her resignation once Brexit was decided. This in and of itself didn't inspire the rally in the Pound. Rather it was the more conservative wing of the Tory party's response to it that bolstered sentiment. Reportedly, they've shifted their support towards favouring the PM's deal, on the basis she'll abdicate here position upon its passing. Traders are pricing in now an increased chance of a breakthrough in Brexit negotiations, that will ensure that an orderly enough Brexit will transpire before the April 12 deadline.
    Written by Kyle Rodda - IG Australia
  7. MaxIG
    US GDP data capped-off last week’s trade: Trade closed last week on something of a puzzling note. The attention, from a macro-economic point-of-view, was fixed in on US GDP data. Amidst all the fears of slower global growth on one hand and hope for a nascent global economic turnaround on the other, the US growth figures were being viewed as a tangible insight into the cogency of each point of view. Ultimately, the data provided little support for one over the other – and perhaps even deepened the divide. The headline figure was good for the bulls, however below the surface, there was plenty for the bears to find vindication, too.
    US economy in a mixed state: The news flow, naturally and rightly, focused on the headline figure: against an expectation of a 2.2 per cent print, it came-in at a robust 3.2 per cent, reversing (apparently) a multi-month decline. The underpinning driver of the strength was in the exports and inventories component of the data, which greatly exceeded expectations. However, for market participants, there were some far more significant details in the fine-print to drive market action. Consumption was much weaker than expected, adding to concerns that the US consumer may be displaying some late-cycle behaviour; while the price-growth component revealed softening price pressures within the US economy.
    S&P500 rallies as US Treasury yields and USD fall: It’s for this combination of reasons that US stocks rallied, and the US Dollar and US Treasury yields fell, throughout Friday’s North American session. The S&P500 put in a solid performance, on heightened activity, as the confluence of better than expected earnings, stronger than expected economic growth, lower bond yields, and a weaker currency bolstered equities. In fact, the day’s positivity was so much so that the S&P500 managed to register another small milestone: it finished Friday’s trade once more by clocking a new record closing-high; and now sits 3 points shy of its all-time record intraday high of 2942.

    A “just-right” bowl of porridge? To employ something of a cheesy (fairy-tale themed) cliché: overall, the US GDP data was perhaps the “goldilocks” print for which market participants had been hoping. Economic growth, on the aggregate, is solid, while little justification exists for the US Fed to reinvite “rate-hike” considerations into their policy-mix. The favourable financial conditions that has returned the US stock market to new highs will remain; while there appears enough steam in the US economic engine to sustain earning’s growth, for now. And it’s fitting this view is consolidating now: its mettle will be tested by tonight’s US PCE inflation report and Wednesday’s Fed meeting.
    Traders still pricing in a cutting Fed: As it is the world-over: traders are seeing limited risk of inflation, and therefore interest rate hikes, in the US economy. Following Friday’s GDP report, US 2 Year Breakevens have continued to fall – trading now in the realms below 1.8 per cent. Incidentally, it is that figure that the last PCE release revealed US price growth to be. Expectations have built that tonight’s set of numbers will reveal a fall in inflation once again. And it’s clearly manifested in the implied probabilities of US rate cuts: interest rate traders have factored in 22 basis points of cuts from the Fed by the end of 2019.

    US Dollar falls; AUD rallies: Much like the action in stocks and bonds, currency markets have traded in line with the growth-positive, low rate-hike-risk theme. Of course, the most conspicuous manifestation of this has been in the US Dollar, which depreciated markedly on Friday evening. The ultimate beneficiaries of the weaker greenback were growth-tied currencies — meaning our Australian Dollar has bounced off its lows. On balance, it’s difficult to imagine the A-Dollar regaining too much ground while markets effectively price in two RBA cuts this year. However, data permitting, a modest foray back through the 0.7000 handle can’t be precluded right now.
    ASX200 to open today’s trade flat: For all of Wall Street’s heightened optimism, somewhat unlike last week, Australian stocks will forego its bullishness at the outset this morning. SPI Futures are indicating a 2 point drop this morning, backing up a similarly flat Friday. The session on Friday was largely a benign extension of Wednesday’s trade: interest rate sensitive stocks, such as those in the utilities and real estate sectors, found most buying activity. However, perhaps due to weakness in Chinese markets, coupled with a fall in commodity prices, the materials and energy sectors weighed on the index, resulting in a tepid gain of less than 0.1 per cent on Friday.
    Written by Kyle Rodda - IG Australia
     
  8. MaxIG
    Written by Kyle Rodda - IG Australia
    Asia and Europe’ Monday: Markets were generally experiencing a much-desired bounce for the better part of Monday, enabled by a day light on market moving information and data. The confirmed election of populist Brazilian leader Jair Bolsonaro boosted emerging market indices. News that German Chancellor Angela Merkel would be stepping down as leader of the governing CDU party, combined with a ratings downgrade of by Italian debt S&P, sent minor ripples throughout Europe, pricking some nerves about the state of the European Union and its economy. But the lack of event risk, dearth of corporate reports, and limited external news managed to keep negative sentiment in Asian and European trade relatively mooted, leading to a mixed day for Asian shares, and a generally solid-one for Europe’s.
    Trade War escalation in US trade: True to form however, the cautious optimism of market bulls has been kicked-down again late in Wall Street trade, as news filtered through the wires that the Trump Administration intends to slap additional tariffs on Chinese imports if talks between US President Donald Trump and Chinese President Xi Jinping at next month’s G20 fall by the wayside. Early price reactions to the news were of course negative, proving enough to wipe the session’s early gains from the Dow Jones, NASDAQ and the S&P500, while turning the tide of positivity in futures markets into a state of vigilance. Upon their close, US stocks have dropped in the realms of one-percent, setting a tone to the week’s trade very much in line with last week’s.

    The Trumpian approach: It’s hard to pick the rationale of the Trump Administration and its hard-headed approach to China. In the hysteria to point-out President Trump’s characteristic buffoonery, it is often lost that several legitimate concerns exist regarding China and its behaviour as a global economic citizen. Some sort of response to anti-competitive trade practices and the like from China is perhaps overdue, but the question is whether the Trump Administration’s approach is one designed to really achieve results. The Chinese despise backing down to a foreign power, wishing – as is widely stated about Chinese culture – “to keep face”. Waving a big stick at the Chinese is sure to only make them more stubborn and delay any material change.
    US mid-terms: Perhaps the approach can be viewed cynically as a populist-play ahead of US mid-terms to fire-up the American public – and more specifically, Trump’s core constituency. Votes are cast for Congress in slightly over a week, and it is shaping up as a test of Trump’s legitimacy. Talks of a Democratic “blue wave” washing over the US Senate and House of Representatives would surely have the White House concerned -- an outcome that, if witnessed, would surely shift Trump’s power-base and policy platform. It’s something the Chinese will be monitoring closely: a Republican thumping in the mid-terms could be seen as a vote of no-confidence in the White House, and potentially by extension, a vote of no-confidence in President Trump’s belligerent approach to foreign policy.
    Risk-off on a protracted trade-war: Nevertheless, a protracted trade-war, based on the balance of evidence, seems likely – a fact last night’s developments dutifully reminded market participants.  Backing-up some stark guidance from US industrial giants last week about the profit-eroding impacts of the trade war, the effects on equity markets of the possible introduction of new and bigger tariffs will be lingering. Haven assets furthered their bid higher on this basis, adding to their short-term spike: the yield on benchmark US 10 Year Treasuries fell again to 3.07 per cent, pushing the US Dollar higher across the board. Naturally, the stronger greenback and heightened risks to global growth has pushed the AUD/USD lower, to trade back towards the recently penetrated support level of 0.7040.
    China can’t take a trick: Last night’s new trade-war salvo can’t be good news for Chinese equity indices today, especially after China’s stocks were the great underperformers during yesterday’s Asian session. Though there was no overt news to precipitate it, Chinese indices took another bath in trade yesterday, tumbling 3.05 per cent (if using the CSI300 as the benchmark). Despite quite attractive valuations and policy makers full bore attempts to support stock markets, the power of sellers has proven too overwhelming for China’s equities. While the fundamentals are surely not as bad as price action suggests, very little impetus apparently exists for investors to jump-back into Chinese stocks right now. Adding to the bear base, the technicals suggest that (on the daily charts) that the market isn’t yet entirely oversold, meaning a plunge below recent lows at 2980, down toward support at 2900, is a possibility.

    ASX today: SPI futures are indicating that the ASX200 is in for a considerable dump at market open of around 78 points. There was an element of hope amongst investors yesterday that the strong activity in Australian shares was the turning point bulls had been waiting for: the momentum/growth plays in the health care space lead the ASX higher, while the sectoral map showed gains in every sector on market-breadth of 69 per cent. To the assumed vexation of the bulls, last night’s trade war developments are poised to erase yesterday’s bounce, reaffirming the bearish tone to trade on the Australian share market. And (arguably) justifiably too: the ASX200 remains oversold, implying bounces are necessary on the path of this trend lower – the dynamic of which is being perpetuated by a set of bearish fundamentals, that have not yet changed.
  9. MaxIG

    ASIC regulation changes
    New ASIC regulations coming into force for Australia are set to standardise the way margin close out rules work for retail traders. If the total equity of your CFD account fall below 50% of the margin required for all your open CFD positions on your account, one or more of your open CFD positions will be closed out as soon as market conditions allow. On the IG trading platform the new margin close-out rules will come into effect from Saturday 27th March 2021. Please find an overview of the new regulation and how this may affect your account.
    Please remember that these changes only affect retail client accounts held with the Australian office of IG Markets Ltd (this includes New Zealand clients), and do not apply to IG Pro clients. Please add any query, question, or request for clarification in the comments box.
     
    What is the new ASIC margin close out rule?
    Put simply, under the new ASIC rules we will need to include running losses for limited risk positions when looking at the equity calculation. Let's look at a worked example. 
    Say you have $1200 cash on your IG account.  You place an Australia 200 trade with a guaranteed stop and it requires a margin of $1000.  If the market moves against you $200's worth you would then start to eat into your equity. If the market continues to move against you by a further $500 (i.e. 50% of the margin required to open your trade) your position would be closed. This is because your equity is now only 50% of your margin requirement.  The new ASIC rules require us to close the position.  You would be left with $500 in your account. Please remember if the market gaps over this level then there is no guarantee to close your trade at this exact 50% level. There is a 'negative balance protection' rule which will be in place from March 27th, however this applies to the account as a whole and only applies to new positions opened after March 27th. There are a couple of other important things to note
    We will not be implementing 24 hour or weekend close out rules for ASIC retail clients.  This change will be made on March 27th and will be applied on an account level (both existing and new positions). If you have a regular trader account, you can still use running profits to cover margin on new positions. Positions which have guaranteed stops will be margined at the higher value; maximum risk on the trade or the underlying market margin rate.   
    What does this mean for me?
    "I currently have a limited risk account" - If you currently have a limited risk account (i.e. every time you open a new trade you have to have a guaranteed stop attached to your trade) then you may be at risk of having your positions closed out automatically. This will be the first time that previously 'limited risk' accounts could get closed out automatically. 
    "I currently have a regular account" - If you currently have a regular account (i.e. you don't need to apply a guaranteed stop to every position, however it is an option if you wish) then you may be at risk of having your positions closed due to the above change in close out rules. When we calculate account equity today, we do not currently include running losses on positions with guaranteed stops. Under the new ASIC requirements, we will need to include running losses on such positions as part of the margin ratio calculation. This means that your positions will be closed out when your equity (ie cash including all running profits and losses) covers only 50% of your margin requirement.
     
    You may also find the following links useful.
    https://www.ig.com/au/asic
    https://www.ig.com/au/professional
    Once again, please remember that these changes only affect retail clients of the Australian office of IG Markets Ltd (this includes New Zealand clients), and do not apply to professional clients. Please add any query, question, or request for clarification below.
  10. MaxIG
    ASX edges higher: The ASX200 edged higher yesterday, as what is a technically overbought market recovered some of its Friday losses. Upside momentum has clearly cooled for the local stock market, ahead of a week heavily geared towards positioning for this weekend’s G20 meeting. Overall, it must be said it was a low impact and low activity day’s trade yesterday. Consumer stocks were most responsible for the day’s losses, sapping around 4 points from the ASX200, while Real Estate and bank stocks lead the market’ gains, following signs of improvements in clearance rates over the weekend in the Melbourne and Sydney housing markets. 

    Aussie Dollar pops on RBA comments: The Australian Dollar experienced a little lift to kick-off the trading week. A short-term phenomenon, for sure, the local unit climbed following comments made by RBA Governor Philip Lowe at a panel discussion yesterday morning, that “… it’s legitimate to ask how effective more [monetary policy] easing would be”. Though certainly not a statement about future policy, the comments did have the small effect of leading traders to briefly unwind their bets for future rate-cuts from the RBA, boosting the AUD. Currently, the market is pricing in a 77 per cent chance of another interest rate cut next week.
    Dr. Lowe’s policy prescriptions: Perhaps only for the econo-nerds: Governor Lowe did make some interesting statements about Australia’s future economic management, the role of monetary policy in the economy, and what might be required (the world-over) to support long-term economic health, yesterday. Reiterating what he’s implored in several of the RBA’s recent communications, Governor Lowe suggested that government should be “full of ideas” for large-scale fiscal and structural reforms, as a means of underwriting economic growth moving into the future. And the strong implication was that, with long-term borrowing rates at historically low levels, the time for such reform is now.
    The (true) dead hand of government? It makes for a pertinent debate: what and/or who is best at managing and growing the wealth of a nation? Demonstrably, the onus, since the Global Financial Crisis, has fallen disproportionately upon central banks to manage the economic fortunes of society. Though flawed, the historical process behind this quasi-system is explicable. Years of fiscal profligacy in Europe and the United States, particularly leading into the GFC, has rendered governments in those economic regions more-and-more impotent. This has created an over-reliance on central bankers to compensate for the noteworthy lack of fiscal firepower possessed by these governments, and sustain global economic wellbeing.
    Australia’s fortunate position: Central bankers, most pertinently at the Fed, ECB and BOJ, have thus (arguably) gone beyond their traditional mandate of price stability and full employment to ensure they achieve the tacit objectives outsourced to them by government. But, going back to Governor Lowe’s commentary yesterday, herein lies the rub of this for the Australian economy: owing mostly to good fortune, Australia’s fiscal position is relatively strong. That means that the RBA shouldn’t and needn’t be relied upon the same way other nations rely upon their central banks. Our government can do some of the heavy lifting – provided it can spend the money in productive ways.
    Another night of subdued trade: In overnight trade, markets were characterized by a small case of Monday-it is. Perhaps one could call it the hangover from such a big-week last week. Wall Street has traded on low activity, with the S&P500 continuing to dance around its all-time highs. Sovereign bond yield in North America and US fell once again, as markets maintain their move to price rate-cuts around the globe. The USD has remained offered. Falling yields and the weaker Dollar has pushed gold to fresh highs around $1420. And what it all implies for the ASX200 today: SPI Futures are pointing to a roughly 14-point drop this morning.
    Crypto’s spark-up: Crypto-currencies are experiencing a new lease-on life, with Bitcoin climbing above the $US11,000-mark for the first time in 15-months. Bitcoin has apparently benefitted from a handful of factors in the past month-or-so. For one, the prospect of imminent rate-cuts from central bankers across the globe is fostering both greater risk-taking, as well as a desire to diversify exposures to traditional, fiat currencies. On top of that, and perhaps more importantly, the re-escalation of the US-China trade-war, plus heightening geopolitical tensions across the globe – especially in the middle-east – is boosting the appeal of methods of payment and exchanges that skirt economic sanctions, and other regulations.

     
    Written by Kyle Rodda-IG Australia
  11. MaxIG
    ASX missed the party yesterday: The ASX bucked the trend yesterday, at least across the Asian region, closing 0.26 per cent lower at 6063. Ostensibly, Australian shares missed-out on the party: global equities were noticeably higher across the board, with the other major regional indices in China, Japan and Hong Kong adding well in excess of 1 per cent for the day. Though a step-back for the Bulls, it's no cause for alarm: the price action speaks of a few idiosyncratic quirks on the ASX200 yesterday. The index was weighed down by a few heavy-hitters: CBA went ex-dividend and its share price fell 2.89 per cent; and despite reporting some solid results, over-zealous investors dumped CSL following the release of that company's earnings, to push its share price down 3.92 per cent.

    CBA and CSL weighed on the ASX200: In an index like the ASX200, which is quite top heavy, when 2 of your top 5 weightiest stocks underperform markedly, registering a day in the green is always going to be a challenge. Other measures of how the market performed for the day present more favourably for the Australian share market. Breadth was respectable at about 60 per cent, for one. There was another failure by the ASX200 to break resistance at 6100, which might add to the view the market has gassed-out in the short term and is due for a pullback. Conditions for medium term upside remain in place nevertheless, especially if the prevailing macro-themes in the market, ranging from central bank policy to the trade-war, continue to fall the way of the Bulls.
    Risk appetite elevated on positive news: SPI futures are indicating a modest lift in the ASX200 this morning, of around about 6 points. Wall Street, at least as this is being written, is registering another day of gains, albeit on some pretty low octane trade. The week in global equities has been defined by more positive trade-war headlines, which has raised the prospect of a continued freeze in trade tensions. It's difficult to imagine that the trade-war will go away any time soon, but markets probably have accounted for that in prices. Global growth will stay the underlying bugbear, so long as central bankers don't rattle the cage with rate-hike talk again. However, a weaker global economy is something traders seem willing to stomach for as long as recession risk remains low in the short term.
    Upside exists as long as recession risk is low: That's likely where the current equity market-run would stop in its tracks: if a recession finally hits one of the major economic regions. In the absence of this though, history suggests that, although the returns would be meagre compared to what was experienced during the "synchronised global growth" upswing in 2017/18, gains in stocks in an environment of slackened global growth are still possible (if not the recent norm) if loose monetary policy is maintained. It’s looking as though a familiar dynamic is taking hold: a fundamental search for yield, in an environment that supports risk taking, is seeing capital move out of safer assets in fixed income and cash markets, and into higher yield equity markets – boding well for global equity indices in the short-to-medium term.
    Its Fed before fundamentals but that could change: Market participants have proven their concern is first with the Fed and financial conditions, followed by fundamental concerns like earnings, global growth and concomitant factors like the trade-war and geopolitical ructions. Again, that balance would shift in the event recession risk becomes too heightened. While not an immediate problem now, such a risk ought not to be waived away. Economic data is treading a fine line, especially in Europe, and would indicate the world economy is on some sort of slippery slope. China is in the same boat, but unfortunately the opacity of their financial system and economy make it difficult to garner a credible view on the Middle Kingdom. The US stands out as a beacon in the global economy presently and is willed by the Bulls to maintain its currently solid growth outlook.

    Inflation risk looking low: One risk that doesn't appear too bothersome for traders -- in fact, it may be a welcomed dynamic -- is that inflation in developed markets is apparently flatlining once again. It was a theme of last night's trade: market’s received inflation data out of the U.K. and US economies, prefacing the release of Chinese CPI data today. On balance, CPI missed expectations in both the US and UK overnight, presumably to the relief of central bankers, who in the face of market volatility and growth concerns, would loathe being pushed into hiking rates because of an inflation-outbreak. In response to the news, traders maintained their position that global rates will stay low this year, as the global economy wrangles with its current funk.
    European bond curves flattening; greenback stands to benefit: Bond curves have flattened in the European region, consequently. Bizarrely, and this does not bode well for the Euro and Pound potentially, markets are still pricing in some-chance of a rate hike still from the Bank of England or European Central Bank this year. Far be it to argue with the will and wisdom of the market but given Brexit tensions and clear signs of cracks in the continent’s economy, the notion rates can move higher in this dynamic is fanciful. The US Dollar will be a barometer for European (and probably global) growth risks, as well as the rate outlook for the BOE and ECB. Although the greenback is still range-bound here-and-now, a desire for safety and higher yield should attract investors to Treasuries, and subsequently bolster the USD going forward.

    Written by Kyle Rodda - IG Australia
  12. MaxIG
    ASX overbought; but clear-air ahead: The ASX200 ought to add another 22 points this morning, according to SPI futures. There is a lot of enthusiasm about Aussie stocks presently – something surely attractive for the contrarians who like to run counter to prevailing market sentiment. It’s been said so much that it’s become facile: a pull-back must come soon to test the strength of the market’s recovery. Of course, it is a matter of when this eventuates – timing is always the toughest thing to predict in financial markets. The ASX200 has become technically overbought on the daily-RSI; however, by that measure, momentum is still intact and pointing to an uptrend. Clear air exists for the market now too, with the next resistance level sitting slightly above 6100.

    ASX has the wind to its back: It’s often said that compared to other major indices, the ASX200 is a trifle boring to trade. It’s a simple formula, well known to most: get a view on the banks, and get a view on the miners, and you’re almost the whole way to knowing where the index will go. The bulls were thrown a bone on both fronts this week. The soft-touch (“pragmatic” is the word being used) recommendations contained within the Hayne Report has set a fire under bank stocks; and the parabolic rally in iron ore prices has the big-miners looking like an attractive long-proposition. It must be stated the market’s rally is broad-based, with volume and breadth in the market solid. But that had already been so, so-far in 2019: it meant little without the bank-bulls charging.
    Banks rally, but fundamentals questionable: The rally in the banks this week is arguably in large part a “catch-up” rally – the financials sector had been the only sector in the red for 2019. Bank stocks weren’t being touched, despite the bullish macro-drivers in global equity markets. But with this week’s rally, financials are up 4.50 per cent, against an overall index return of 6.7 per cent; perhaps the banks have rebalanced now with where the ‘big-picture” suggests they ought to be. The next question is however, what upside exists for the banks based on their fundamentals? This will take time to flesh-out, as each of the Big-4 progressively update the markets on their performance – and especially as the political cycle turns the findings of the Hayne Royal Commission into an election issue.
    CBA the first to show cards: Markets did receive their first insight into the financial state of the nation’s banks; and fittingly it was the CBA yesterday morning that provided their half-year results. The figures released spoke of a bank de-risking in the face of regulatory pressure, being stifled by higher global funding costs, and struggling with the Australian property market’s downturn. The ratio of Tier-1 capital the bank is holding climbed to 10.8 per cent, and its net-interest-margin shrunk by 4 basis points. Not a disastrous result by any means, however given that credit growth in Australia is still slowing, and the domestic property market seemingly has further to fall, suggesting a turn in the multi-year downtrend in the CBA’s share price will reverse because of diminished of regulatory-risk seems fanciful.

    The RBA becomes “balanced”: The concerns confronting the banks and the Australian economy (as a whole) were addressed in a speech delivered by RBA Governor Philip Lowe yesterday. His view on the economy was decidedly more “balanced” – as the Governor himself explicitly described – than what it had been at any stage in 2018. It was a refreshing take, however one that got market participants moving. What’s been inferred from the speech, is that given the slowdown in the global economy, weakening domestic demand, and issues in consumer credit and the property market, the chances for a rate hike are now even with that of a rate-cut. Gone is the rhetoric that “the next move in interest rates is likely to be higher”: the RBA, for all its optimism, is on standby with policy support if economic conditions deteriorate.
    Australian bonds and the AUD: As one can imagine, the Australian Dollar hated the change in the RBA’s outlook. It was the worst performer of all G10 currencies yesterday, diving to an overnight low of 0.7110 against the greenback. The probability of an interest rate cut at some point in 2019 has spiked, to effectively a 60 per cent implied probability. Australian Commonwealth Government Bond yields tanked consequently, with the 2 Year ACGB tumbling 10 basis points, and the 10 Year ACGB shedding 8 points. The fall in yields, though being brought-about by a less-rosy outlook for the economy, is probably supportive of the ASX for now. The drop-in discount rates have made valuations marginally more attractive, while more significantly, the lower Australian Dollar has visibly provided a boost to the market in the short-term.

    Powell and the BOE the highlights today: With less than an hour to trade, Wall Street looks as though it will finish in the red today, following a weak day in European equities, and a solid day across Asia. Overnight news-flow was bereft of market moving headlines, so traders look to the next 24 hours for inspiration. US Fed Chair Jerome Powell speaks today (11.00AM AEDT), but the big focus may well be on the Bank of England tonight. The GBP has lost its lustre this week, as markets come to the realization that a no-deal Brexit is a higher likelihood than what was being priced-in. The BOE are hamstrung at-the-moment, unable to shift policy stance until a Brexit outcome is known. An optimistic but idle central bank is to be expected until it is.
    Written by Kyle Rodda - IG Australia
     
  13. MaxIG
    ASX to keep trading on its own themes: SPI Futures are presently indicating an 18-point jump at the open for the ASX200. Once again, Australian equities look as though they’ll march to the beat of their own drum today. It comes on the back of a reasonably solid day for the ASX yesterday – though admittedly it was another day of relatively low activity. A general driver for the session’s activity was hard to pinpoint, perhaps fortunately, with the market trading much more on the basis of the myriad micro-concerns impacting individuals shares and sectors. It may be a dynamic that set not to last, as market participants prepare for a significant “macro” day today.
    A dovish tilt from the RBA? Not that such themes were entirely absent in the local market yesterday, just that they proved insufficient to markedly change the narrative for the ASX. The RBA’s meeting minutes were released yesterday, and more-or-less confirmed the suspicions of market participants: the central bank is entertaining the idea of possible interest rate cuts in the future. Always the first to take the conservative route, the RBA was clear to state it merely discussed under what circumstances a rate cut would be necessary and were explicit in their view that such a set of circumstances aren’t present within the Australian economy right now.
    RBA keeping their powder dry: As is reasonably well known, the RBA’s central thesis is that although global growth conditions are softening, and that there remains major domestic economic headwinds, while the labour market keeps tightening, there exists no immediate need to cut interest rates. Furthermore, the RBA outright acknowledged, in perhaps what is a small hint at government policymakers, lowering interest rates wouldn’t deliver the same impact to economic conditions as they had in the past. Nevertheless, traders concluded from the simple recognition of the possible need for further monetary stimulus in Australia’s economy as a sign that the RBA is losing confidence in the local growth engine.
    AGBs out of step with global bond markets: The result was a brief fall in the Australian Dollar following the release of the RBA’s minutes, as traders repositioned their bets on the future of Australian monetary policy. Having unwound recently positions that the RBA would need to cut rates by August this year in response to a moderating of global growth fears, yesterday’s minutes forced the market to increase the implied number of interest rate cuts before the end of 2019 to about 29 basis points. The knock-on effect saw AGB yields fall, out of step more broadly with bond markets, which experienced a general climb in bond yields yesterday.

    Growth concerns diminish; but risk appetite neutral: As might be inferred from the moves in bond markets, trade overnight was characterized by a further diminishing of fears about the outlook for global growth. US 10 Year Treasury yields were up by 3.6 basis-points to 2.59 per cent, and 10 Year German Bunds maintained its (albeit slim) positive yield. It was by no means a total risk-on day, however: stocks were up globally, with the world-indices map a sea of green indeed; but looking at the S&P500 in particular, it was only 0.05 per cent higher for the Wall Street session, as investors digest US earnings season bit-by-bit.
    China to dominate today’s proceedings: A very significant read on the state of the global economy comes today: the so-called “monthly Chinese economic data-dump” is delivered– and this time around, it includes the Middle Kingdom’s GDP numbers, too. The turnaround in fortunes for global risk assets lately has largely come in shifting perception about China’s economic wellbeing. There is greater hope that China’s economic slowdown, which had rattled market participants in the first quarter, has bottomed-out. Core to further upside for risk assets, improvements in China’s embattled economy is a necessary precondition for optimism towards the macroeconomy and for global stocks to maintain their trend higher.
    Chinese equity markets’ catch-22: So, equity markets in developed economies need to see strength in China’s economy to sustain themselves. However, and perhaps somewhat ironically, the case isn’t as clear cut for China’s financial markets. Chinese equities have outperformed global peers year to date, as markets position for looser financial and fiscal conditions to support growth in the Chinese economy. Less a reflection of strong fundamentals, it’s been this loosening of fiscal and monetary policy that has driven capital flows into riskier assets. Being this way, strong economic data out of China may reduce the requirement for such accommodative policy-settings and inhibit short-term upside in Chinese stock indices.

    Written by Kyle Rodda - IG Australia
  14. MaxIG
    Written by Kyle Rodda - IG Australia
    ASX200 yesterday: It was a tale of two halves for the ASX200 yesterday, dipping at the open before roaring back to close the day’s trade 1.3 per cent higher. The dour beginnings came on the back of reports from Bloomberg – now well known – that the Trump Administration would be seeking to slap tariffs on (in effect) all Chinese imports into the US, if a deal couldn’t be achieved between US President Donald Trump and Chinese President Xi Jinping at next month’s G20 Summit. In a testament to the jumpiness of financial markets the world over currently, the tone changed in global markets upon the release of news that, in an interview with Fox News, US President Trump believed there was a “great deal” in the works between the US and China.
    Sentiment in Asian trade: A highly ambiguous statement. Nevertheless, market participants – clinging onto every shred of hope – took the comments, bound them to their sense of optimism, and ran Asian equity indices generally higher. Breadth on the ASX200 was at a noteworthy 75 per cent, though on volumes slightly below last week’s average, with the major momentum/growth sectors topping the sectoral map. The financials, as is always required, did most of the heavy lifting, adding 30 points to the index, in part in preparation for upcoming company reports from the Big 4. The Australian market has now pulled itself out of oversold levels, to break-trend on the RSI, and in doing so, establishing the foundations for a challenge of a cluster of resistance levels between 5780 and 5880.
    Corrective bias remains: No doubt, it was a praise-worthy performance from the ASX200, but Australian investors are far from out of the woods yet. Putting aside the major global drivers dictating the fate of equity markets the world over, the simple price action on the ASX200 index doesn’t yet indicate an end to the recent bearish streak. If anything, at least as it currently presents, the technical indicators play into it. The push into oversold levels necessitates a recovery in the ASX, as bargain hunting buyers galvanize a bounce higher. There’s some way to go before a reversal in the recent short-term trend lower can be definitively considered finished. A clean break through 5930 and a solid hold above 5780 would be the categorical sign required before this can be stated. Until then, abandoning a bearish perception of the ASX may well be premature.

    ASX200 drivers: As if often stated, the overall activity in the ASX200 is determined by an oligopoly of banks, a slew of mining companies, a couple of supermarkets and a much-loved biotechnology firm. The banks have received a leg-up thus far this week, as investors ignore regulatory risk and a property to slowdown to buy in ahead of a series of bank earning’s reports. The miners are being slayed by increased concerns about the impacts of tariffs on global growth, though increased fiscal stimulus from the Chinese and its knock-on effects to iron ore prices could be their salvation. Woolworths and Wesfarmers are performing solidly, though not well enough to carry the entire market higher. While a diminishing appetite for growth/momentum stocks has led to losses of over 5 per cent for market darling CSL over the past 3 months.
    Global macro and share market trends: Reviewing the fundamental macro forces required to stimulate the market perhaps reinforces the notion that the ASX200 still has some correcting to do. Although equity markets have experienced a relatively strong start to the week, the risks that catalysed the recent correction in segments of the market have not disappeared. Much of the reversal can be attributed to a belief amongst investors that the recent share market volatility will force the US Federal Reserve to soften its hawkishness and increase US interest rates at a slower pace.
    US Treasury markets reflect this, with the yield on the rate-sensitive US Treasury note falling from +2.90 per cent to as low as 2.81 per cent this week, as traders decrease their bets on December Fed-hike to 70 per cent. Indeed, it remains a possibility that a “Powell-put” under the US (and therefore global) share market may emerge, but the remarkably strong fundamentals in the US economy still imply a need for the Fed to hike interest rates – a dynamic that, if it materialized, will sustain volatility and further equity market adjustment.
    Overnight in Europe and America: To lower the eyes and turn focus to the day ahead, SPI futures are presently indicating a 9-point drop at the open for the ASX200. Futures markets have pared losses late in US trade, following a late session run on Wall Street that has seen the Dow Jones climb an impressive 1.86 per cent, the S&P500 rally 1.26 per cent, and the NASDAQ jump 1.56 per cent – though the latter may find itself legged in afterhours trade as investors digest Facebook results. The rally in the North American session followed-on from a soft day in European shares, which were mired by news of a potential ratings downgrade of UK debt by S&P, along with mixed economic data releases across the Eurozone. The USD climbed because of this imbalance between European and American sentiment, pushing the EUR below 1.1350, the Pound into the 1.27 handle, and gold prices to US$1223 per ounce.
    Australian CPI data: The trading week hots-up from today onwards, in preparation for several important fundamental data releases. Domestically, none will come more significant than today’s Australian CPI print, from which market participants are forecasting a quarterly price growth figure of 0.5 per cent. That number, if realized, won’t be enough to crack the bottom of the RBA’s inflation target band of 2-3 per cent, and will, in effect, affirm the central bank’s soft inflation outlook and dovish rate bias. As always, a figure of extreme variance to either side of market consensus could shift the Australian Dollar and interest rate markets. Traders remained wedded to the idea that the RBA won’t hike interest rates until early 2020: an extreme upside surprise in today’s CPI could see this adjust and spark a run higher in the AUD/USD towards trend channels resistance at 0.7200 – though this outcome is highly unlikely.

  15. MaxIG
    Aussie growth underwhelms: Australian GDP data was the highlight of the economic calendar yesterday. All-in-all, the data was of minimal impact, though it did for make big headlines: the growth rate came-in at 1.8 per cent on an annualized basis, as expected – the slowest rate of economic growth since the GFC. A poor print undoubtedly, but one that had been priced into the market well in advance. Hence, markets were little moved upon the release. The ASX200 hardly budged. The Australian Dollar lifted very slightly, and temporarily tussled with the 0.7000 handle. And interest rate markets increased very marginally the probabilities of more RBA cuts by year-end.
    Where the weakness is: The data was more of interest for economists and other pedants. And there were some interesting takeaways from the release. As is well known, one of the major headwinds for domestic growth is private consumption, which continued to show signs of slowing. The savings ratio also lifted, as consumers seemingly opted to defer spending and pocket their modest pay rises. More than just demand side concerns, there was also a noteworthy drag on growth from the supply side. Dwelling investment also contracted in the last year, in line with what has been a well-publicised slowdown in construction activity, and sustained falls in the property market.
    Where growth is coming from: The GDP data wasn’t without its silver linings, of course. A series of factors leapt-out as the primary drivers of growth in the Australian economy in the past 12 months. It was largely improvements in the nation’s terms of trade, courtesy of the major multi-month rally in iron ore, followed by big government spending measures, mostly in form of the NDIS and other health services, that proved the greatest contributors to growth. Though welcomed, to be sure, the areas of Australia’s economy sustaining growth speaks of a country currently working below its capacity, and in need of some sort of a boost.
    Why the RBA is cutting rates: It’s this dynamic that explains, and perhaps even vindicates, the RBA’s decision to lower interest rates on Tuesday. Domestic economic conditions are weak (and likely softening), and requires a little policy support, from central bankers and government alike, to stimulate ongoing employment and GDP growth. Based on such a logic, the pricing-in of interest rate cuts into the back end of the year appear highly rational. And this seems especially so when considering that (as was alluded to by the RBA on Tuesday afternoon), international economic growth is likely to slow, if not falter, due to the pernicious consequences of an escalating global trade-war.

    Risk-appetite lifts overnight: Which leads to the overnight price action in North America, and to a somewhat lesser extent, Europe. Risk appetite has been piqued by news that US President Donald Trump stated his belief that Mexico wants a trade-deal to happen, as well as comments from Trump trade-advisor Peter Navarro that the tariffs on Mexico may not have to go ahead. The headlines (and really, for now that’s all they are) stoked a rally in US equity indices; catalysed a fall in the VIX; lead to a narrowing of corporate credit spreads; and provided room for a bounce in the US Dollar,
    Sentiment improves, fundamentals haven’t: The question becomes now whether we’ve put-in a new low in global equities, or whether this is just a little fake-out. There is lingering suspicion that it may be closer to the latter, given the fact that although friendly words are being passed between the Americans and Mexicans, nothing has truly changed yet. Even more to the point, the Americans and Chinese have in no way thawed their present animosity towards one another. It suggests that although market sentiment has clearly improved in the last few days, the fundamentals haven’t changed. They could, by all means: but signs of that aren’t here yet.
    The better measures of fundamentals: Probably the more pertinent facts here, too, is US stocks’ rally is very “defensive” in nature, and has been ignited mostly by an ostensibly dovish pivot from the Fed. Despite all the confidence that markets have reached a fresh turning point, US Treasuries are still rallying, especially at the front end of the curve. It suggests that the market is assuming the Fed will cut aggressively, and soon, to try to engineer a “soft-landing” for the US economy. The sectors in the S&P500 that have outperformed overnight are safe, yield-generating stocks – not those typically tied to greatest optimism about fundamental economic growth.

    Written by Kyle Rodda - IG Australia
  16. MaxIG
    Australian data draws global interest: Australia’s remarkably weak growth figures captured attention, both locally and abroad. The numbers conveyed in yesterday’s GDP were truly disappointing. Growth in the final quarter of 2018 was a paltry 0.2 per cent, and after another set of revisions to previous data, the annualized growth rate fell to 2.3 per cent. Each figure was quite an undershoot of expectations: for one, economists were expecting the quarterly number to come-in-at 0.3 per cent in seasonally adjusted terms. Now, on the face of it, this may not seem too bad. However, this estimate had been revised down several times in the week preceding yesterday’s GDP release, from around 0.6 per cent, in response to other underwhelming Australian economic data.
    RBA’s dissolving logic: As it stands, the picture the GDP print painted of the Australian economy blows the RBA’s base case out of the water. Recently, the RBA had become candid in its assessment of the (let’s say) “crosswinds” in the domestic economy. So cognizant of the risks, they’d adopted a “neutral” stance to monetary policy moving forward into 2019. But still, their optimism remained: growth would remain strong enough to lead to an even tighter labour market, which would eventually feed into a pick-up in wages growth, and subsequently the inflation and consumption growth long-missing in the Australian economy. It was this view that fundamentally created the bedrock for the RBA’s policy bias and supported their hope for improved local economic conditions.
    A further slowdown expected: It’s seems impossible that the RBA could maintain this base case anymore. Simply put: a growth rate where it is now cannot sustain the necessary tightening of the labour market to put the aforementioned process into motion. Historically, GDP has had to grow at a rate at least above 2.5 per cent to see adequate growth in employment. A growth-rate below this market has traditionally led to an increase in the unemployment rate – a phenomenon that, given we are (arguably) at nominally full-employment now, may well manifest quickly in future labour market data. With that credible assumption made, the elusive growth in wages is terribly unlikely to materialize, meaning the Australian economy is unlikely to meet the RBA’s expectations.

    2 RBA rate cuts possible in 2019: The logic hasn’t been missed by market participants. Immediately following yesterday’s news, traders swiftly priced in the new, less-optimistic outlook for the Australian economy. Bets on a rate cut from the RBA before year’s end spiked. Implied probabilities are now suggesting at least 1 cut from the central bank in 2019. The chances of another cut after this also showed for the first time in pricing – at implied odds of about 25 per cent. Naturally, the bears swarmed the AUD/USD as a consequence. Support at 0.7050 broke, after being tested a handful of times during the day, as the spread between 2 Year ACGBs and 2 Year US Treasuries widened to as far as 88 basis points.
    Lower yields, lower currency, higher ASX: Not that the ASX was overly perturbed by what was happening in the currency and bond markets in response to the GDP figures. If anything, it was a welcomed development, just in the short-term, for stocks. The depreciation of the AUD, coupled with the tumble in bond yields, bolstered equities, leading the ASX200 above 6230 resistance, to close 0.75 per cent higher for the day. It was a broad a based rally too: every major sector was in the green, led by the cyclical materials, energy and industrials stocks, which have also been given a boost by the run up in oil and industrial metals prices. The next conspicuous level to watch from here likely becomes 6310.

    Wall Street struggles: For the day ahead, SPI Futures are currently indicating an 8-point jump at the open for the ASX200. If realized, it’ll be no thanks to the lead Wall Street is likely to hand us. With less than hour to go in trade, the S&P500 has pulled further away from its formidable resistance level at 2815, to be trading 0.5 per cent lower on the session. Momentum is building to the downside for US equities still: the MACD and RSI are both pointing to a market that’s lost its drive. Also, of slight concern is breadth and conviction of Wall Street’s overnight falls. Volumes are above average, while only 20 per cent of stocks are higher for the session.
    The currency complex: The anti-risk, anti-growth bent to trade overnight has brought out some of the typical doomsayers. The result has been a modest lift to the US Dollar, and at that, the Japanese Yen, while gold keeps grinding lower. Across the currency complex, commodity currencies have been the worst performing. The AUD, for the reasons earlier described; but also, the Kiwi and CAD, too – the latter in part due to a dovish Bank of Canada last night, and a dip in oil prices. The Euro is steady as it treads water ahead of tonight’s ECB meeting, at which that central bank is expected to cut its growth outlook. The Pound is ambling as further Brexit developments are awaited.
    Written by Kyle Rodda - IG Australia
  17. MaxIG
    News flow light thanks to US holiday: SPI Futures are indicating a flat start for the ASX200 this morning, in a 24-hours starved of meaningful news and data. US markets were closed for the Presidents’ Day holiday, meaning a crucial source of information was absent from the news flow. It was perhaps a positive thing for market-bulls: the vacuum left by US markets allowed for Asian and Europe equity indices to seize the improved sentiment flowing from Wall Street on Friday, following further progress in US-Sino trade negotiations. Commodities continued to climb, to multi-month highs according to the Bloomberg Commodity Index, led by a push higher in oil prices, as well as a renewed rally in gold, which edged to around $US1326 courtesy of a weaker US Dollar.
    Australian markets in focus: The Asian session will similarly quiet today, before markets return to normal transmission this evening. Arguably, it’ll be a day with attention directed to developments in Australian markets: the key data releases pertain to the RBA and its Monetary Policy Minutes, and ASX heavy-weight BHP, which reports its earnings today. Both the Australian Dollar and ASX200 will enjoy special focus this morning. The Aussie Dollar has pulled back below the 0.7150 handle after rallying beyond that mark on the back of trade-war optimism. The ASX200 will be more interesting for observers: having leapt from the gates yesterday morning to break above 6100 resistance, the index once again failed to prove its bullish mettle, closing trade yesterday at 6089.
    RBA Minutes headlines Asian trade: As alluded to, the highlight on the domestic calendar today, if not for the whole week, will be today’s release of the RBA’s Monetary Policy Minutes for their February meeting. In line with central bankers across the globe, the RBA has entered 2019 with a newly dovish approach to interest rates. Markets have thus far stood to attention: although leading the RBA (in some sense) in factoring the need for looser monetary policy conditions, the change in rhetoric from the RBA this year has further manifested in market pricing. Since the beginning of February, and certainly in the past week, interest rate markets have definitively shifted to pricing a rate cut as the most likely course for the RBA in 2019, over and above that of a “hike” or hold”.

    Slower growth: here and abroad: The variables conspiring to bring-about this dynamic are naturally complex, but can be distilled into a single, broad explanation: both the domestic and global economies are entering a period of slower economic growth. Australia’s symbiosis with China and its economy is never lost on market participants; and with the trade-war exacerbating what seems to be a deep, existing cyclical slow-down in China, Australia’s economy is one of the first to exhibit signs of pain. However, issues unique to the domestic economy remain: though showing tentative evidence of settling now, Australia’s falling property market is an issue of ongoing concern, as are issues of uncomfortably high private debt levels, low wages growth and its impact on inflation, and the generally sluggish state of the Australian consumer.
    The doomsayers argument: There will always be doomsayers in the world, so gloomy forecasts ought to be met with critical objectivity. It’s the way the RBA, however right or wrong they happen to be at any point in time, attempt to approach the world. Their “base-case” is very unlikely to be that the Australian economy is heading for some sort of catastrophic, recessionary set of circumstances. There are many in the punditry however, with cogent arguments as to why recession is a reasonable risk to consider. The position that the onerous burden of high household debt, in the face of tighter financial conditions, low wage growth and a “reverse wealth effect”, will accelerate the housing market’s collapse, and spark some housing-led recession is probably the most headline grabbing and generally evocative of these.
    All this talk of Australia’s ’08 moment: Such a set of circumstances, it’s envisaged, would be Australia’s dose of the GFC it never received in ’08, when a booming China protected the Australian economy from the many ills of that disaster. There is unconscious obsession – probably brought about by the trauma of the event – to contrast any market event with those of ’08. In 2019 Australia, the parallels intuitively exist: just like the US in ‘08, household debt is high, house prices are falling courtesy of the stifling of a hitherto speculative euphoria in the market, and consumers have fewer means to keep consuming or protect themselves from a period of economic malaise. The prospect of less favourable financial and economic conditions could be what it takes to turn a garden-variety economic slow-down into something more serious.
    Worst-case not the likely case; but still good to know: Once more: this crudely described series of events is what can be called, in financial market parlance, a “tail risk” – a low probability but very high impact event. It’s not what the RBA would be considering as their “base-case” for what lays ahead for the Australian economy in 2019; especially so, the doomsayers opinion won’t slip its way into today’s RBA minutes. Arguably, even it came close to becoming that way, at any stage, the PR-machine that is the RBA are unlikely to ever reveal, completely, a true pessimism about Australia’s economic health. Knowing the worst-case scenario market-participants is handy, though, if it can be done so objectively: it provides an intellectual tool to examine how close we are to coming to falling off the precipice we fear.        
    Written by Kyle Rodda - IG Australia
  18. MaxIG
    Written by Kyle Rodda - IG Australia
    Brexit break-down: The headlines in financial markets are mostly Brexit related. What was suspected has become so: Prime Minister Theresa May’s deal with the European Union has fallen by the wayside, potentially (if not, likely) rendering it mute. 24 hours is of course a long time in markets, and this time yesterday optimism was blossoming about a potential Brexit deal to end the years of debate and gridlock. The harsh reality has now bitten though, and the brutal realpolitik has subverted that narrative: Dominic Raab – the UK’s key Brexit negotiator – has resigned from Prime Minister May’s cabinet, amounting to a no-confidence motion in the Prime Minister and her deal. It’s curious still as to what Raab’s motives are: he was in the room with Prime Minister May negotiating the deal with the Europeans. Nevertheless, he has pulled his support, and it’s now believed the castle is about to fall.
    Pound plunges: There was volatility in markets in response to the shock news, however it was mostly contained to Pound. The Cable plunged from the 1.30 handle to trade below 1.2750, in what amounts to its largest intra-day move in over a year, as yields on UK Gilts plunged on back of unwinding bets of more BOE rate hikes. Continental stock indices lost ground, with the DAX shedding 0.5 per cent for the day; however, the plunge in the Pound, coupled with more stable oil and commodity prices overnight, helped the FTSE100 close flat for the day. It’s a very premature call, but futures markets are pointing to a more stable day for European equity markets when they come on line in 10 hours-time, revealing that though Brexit is a massive social, cultural and political issue, for market participants, at least for the time being, it’s more a nuisance than a major concern.

    Wall Street bounce: Activity on Wall Street last night can attest to this: after hitting the skids in early trade as traders digested the Brexit news, US indices gradually turned to trade-off its own themes. It’s resulted in what appears to be a reasonable outcome for the day’s trade. At time of writing, the NASDAQ is up in the realm of 1-and-a-half per cent, the S&P500 has climbed 0.9 per cent, and the Dow Jones is trading 0.7 per cent higher. The real impetus for the shift in market sentiment came upon news that US and Chinese negotiators are in the process of knuckling down terms of a trade agreement to be discussed at this month’s G20 meeting. Industrial stocks have benefitted most from the dynamic, as fears regarding growth risks wane, while Treasury yields have popped higher, with the yield on the US 10 Year note-rallying to 3.12 per cent.
    US fundamentals: Markets were provided with ample material to judge US economic conditions during last night’s trade. US Retail Sales data was released and surprised to the upside, somewhat confirming the US economy’s sustained strength. Of greater import, US Federal Reserve Chairperson delivered two separate addresses in the last 24 hours, hammering-home in both his conviction that the US economy requires further interest rate hikes, even if that means some heightened volatility in asset prices. Traders largely took the news in their stride, taking it as a continuation of messaging markets have received from the Fed for the most part of the year. The US Dollar was rather steady on the news, as interest rate markets held to their current perception regarding future interest rate hikes: that is, a 75 per cent chance for a hike in December, followed by another 2-and-a-bit hikes for the entirety of 2019.
    The big paradox: Moving forward and looking at the bigger picture, herein lies the problem, however: markets are still under-pricing the likelihood that the Fed will hike the 3 times next year that it has flagged. Far be it to argue with the multitude of brilliant minds collectively deciding this. But as recent history has proven, the biggest spikes in volatility have come when traders have mis-forecast the fundamentals and underestimated the conviction of the Fed. It goes back to the big paradox dictating market behaviour currently (although it must be cited this up for debate and is rooted in contestable philosophical assumptions): stronger economic activity will force the Fed to aggressively hike rates, which will suck liquidity from the markets, stretch valuations further, and drive funds into safer, relatively higher yielding assets. The ultimate effect will be tighter financial conditions, higher volatility, and weaker activity in equity markets.
    ASX200: The big picture aside, and the day ahead is shaping up as a positive one for the ASX200. SPI futures are indicating presently a 16-point gain for the local market at the open, inspired primarily by Wall Street’s solid lead. Yesterday’s trade was rather grim for the bulls for the most part of the day, with the ASX200 down by as much as 0.7 per cent intra-day, to test the waters below 5700. Options expiries bailed out the ASX in the end, elevating the market after the formal end of trade to a neutral position for the day. The recovery was supported by positive price action on Chinese indices, which experienced (if using the CSI300 has a guide) a 1.17 per cent gain, along with a rebound in oil prices that lead the energy sector 1 per cent higher.
    Aussie fundamentals: In another example of stock market performance not necessarily marrying up to economic fundamentals, yesterday's local employment figures provided a very healthy upside surprise. The unemployment rate maintained itself at 5.0 per cent, even despite an increase in the participation rate, courtesy of a higher than expected jobs-added figure of 32k last month. The Australian Dollar shot through 0.7240 resistance to rally toward the next key level at 0.7310, opening the possibility of further short-term gains as short sellers continue to be squeezed. Even more remarkably, the labour market numbers resonated enough with (hard to please) interest rate traders: for the first time in quite some time, better than 50/50 odds of a rate hike from the RBA before the end of 2019 is being priced in, as some traders begin to buy the notion of a markedly improving Australian economy.

     
  19. MaxIG
    Written by Kyle Rodda - IG Australia
    Day 1 of 5: Monday looks like it may be one of those days where Wall Street hesitantly pulls itself up out of the dirt in the final hours of trade. There is just under two-hours to go in the US session, and at a high level, things appear not-too-bad. Let's return to America a little later. Whichever way we happen to end the first 24 hours of trade for the week, heightened risk, growth fears and bearishness is still driving sentiment. There has been no shift in market behaviour to indicate a market turnaround is upon us yet. If anything, the headlines regarding the macro-landscape added to the negativity. The data traders received was mixed; rather it was the numerous developments in the politico-economic sphere that inflamed trader's trepidation.
    The Brexit tragicomedy: The big story overnight must be Brexit. This week ought to be about the state of Europe, and at its outset, it has been. If the potential consequences weren't so dire, the situation would appear comical – akin to some absurd, but all-too real life Waiting for Godot re-boot. First-up, the European Court of Justice released a ruling that the UK could unilaterally cancel Brexit and revoke its action of Article 50. UK Prime Minister Theresa May has dutifully shut down that notion. But things did get sticky when Prime Minister May announced she would delay a vote in Parliament of her Brexit bill, on the understanding she lacked anywhere near the required votes to get it passed lawmakers.
    European price-action: It's relatively raw news at time of writing, but Prime Minister May's decision looks as though it will drag Brexit-uncertainty into 2019. The Cable has been pummelled consequently: it has pin-dropped 1-and-a-half per cent through a few resistance levels, to familiarise itself now with the 1.25 handle. The region's share indices were unaided by the news, though of course following the Asian lead, the session was always going to be a struggle. The FTSE registered a 0.8 per cent loss, despite the plunging Pound, the DAX shed 1.5 per cent, and the Eurostoxx 50 lost 1.3 per cent. The troubles seemed also to poison the shared currency, which has pulled back into the 1.13 handle.
    The European bear market: The year has been a write-off for European markets. Now that the macro-narrative is dominated by fears of slower global growth, it seems any hope things can turnaround for the continent is waning. Last night's data out of the region was mixed: UK GDP printed at the 0.1 per cent forecast, but manufacturing production was shown to contract by -0.9 per cent. Data out of continental Europe is still a couple of days away; there will be little in the way of fundamentals news and information that can shift the tide for Europe, however. We are so far in a bear-market in the region, any turnaround appears unlikely. If anything, with US growth and stock market performance converging with the rest of the world, the falls could easily accelerate.

    Asia and the ASX yesterday: The same goes for Asian markets - and more specifically, the hitherto resilient ASX200. Major Asian indices, from China, to Hong Kong, and Japan, all gave up considerable ground in the Asian session. But it was a filthy day for Australian equities yesterday, which was at the bottom of the table in terms Asian equity market performance. Previously solid support levels were brushed aside in early trade for the ASX, as traders collectively decided the share market isn't the place to be right now. Breadth was very narrow at 10 per cent, every sector was in the red, and volume was quite high, particularly for a Monday. The financials were the main culprits, hurt most by fears of domestic economic turmoil: it contributed 57 points to the markets losses.
    ASX price-watch: Everything points to a bearish impulse for the overall index. SPI Futures are indicating a bounce of 30 points today, but it pales in comparison to the 128 points given up yesterday. The bottom of a decade long trend channel is exposed in the bigger picture, now: about 5380 (or so) is the level to watch. If this is the unfolding of a true bear market – a 20 per cent correction from previous highs – the stop after breaking this trend would be around 5090. Getting carried away isn't helpful here, and it's too premature to make doomsday calls on the market. However, true bear markets do often correlate with major economic slowdowns: investors could be trying to tell us something here, so if a market bull, being alert (but not yet afraid) should remain the default setting at least for the time being.

    Wall Street: Returning to US markets, with less than an hour to go in trade, action could be (generously) described as mixed. It’s still risk-off, however the severity of risk aversion has diminished. US Treasury Yields have climbed modestly across the curve, benefitting the US Dollar, which flexed its might again overnight. The US Dollar Index is around 0.7 per cent higher and back above the 97-mark. Credit spreads have narrowed as the session has worn-on. The S&P500 looks like it could close flat, the Dow Jones has rallied late, and the NASDAQ has added around 1 per cent. Much of this comes courtesy of a bid higher in the major, mega cap FANG stocks. A word of warning (it almost goes without saying): breadth is 40% and uninspiring, with the rally attributable to gains in a select few big-tech names. Little of what occurred on Wall Street should be considered a firm sign of an imminent turnaround.
     
  20. MaxIG
    Written By Kyle Rodda - IG Australia
    The bullish week continues: The pointy end of the week has arrived, and so far, the news flow is lining up well for the bulls. The big release, perhaps for the whole week, was this morning’s FOMC Minutes. Naturally, the information is old, relevant mostly to the December 19 period in which the central bank met. But given the market turmoil experienced since then, along with January’s nascent recovery, this set of Fed minutes has taken on slightly greater significance. The reception, as far as investors and other bulls are concerned, has been positive. The document reveals a much more dovish Fed than the one that Chairperson Jerome Powell presented at that meeting’s press conference. The Powell-put is in, it is being judged: the market has Fed support.
    Confidence boosted by dovish Fed: That’s the perception, anyway. It could change but considering sentiment has vacillated recently on shifting “narratives”, a rosy outlook is apparently enough to pique risk-appetite. Combing through the fine-print of the Fed Minutes and few details jump out. Confidence about future growth has waned very slightly, and the need for higher interests has come into question. In fact, a few members voiced their belief the Fed should have kept rates on hold at the December meeting. The board also highlighted the disconnect between financial markets and the “real” economy, though it did add that downside risks to the US economy had increased. Without quoting line for line, the document contains the nuanced and market-sympathetic tone the bulls have been waiting for, vindicating this week’s upside turn in global equities.
    Market response: The response by traders has been to buy stocks and bonds, sell the US Dollar, and seek out other risk-on-assets. The comprehensive S&P500 is dancing with the 2600 pivot point, and the reluctance to go beyond that level shows. Note: it was that psychological-level of support the market bounced off twice before beginning its dive into bear market territory. US Treasury yields have also dipped. The US 10 Year note has fallen by 1 basis point to 2.72 per cent; however, the yield on the more interest rate sensitive US 2 Year note has plunged 4 basis points to 2.54 per cent. Credit spreads, especially on junk bonds, have narrowed further, supporting equity markets, and risk-appetite in general.

    The Greenback tumbles: The US Dollar has maintained its fall consequent to the FOMC Minutes, which it must be stated, experienced the lion’s share of its overnight tumble after a speech from Fed-member Raphael Bostic, after he’d stated that he believed interest rates were very close to neutral. The greenback looks vulnerable to further falls now, having retreated already by 2.3 per cent from its December highs. Gold is looking increasingly in vogue courtesy of the weaker USD and the absence of other appropriate currency safe-havens, climbing to $US1292. While the AUD/USD, having broken resistance at 0.7150 during Asian trade yesterday, is continuing its march towards 0.7200 support/resistance, even despite traders pricing an increased chance of RBA rate cuts at some point in 2019.

    In other news: Of course, the FOMC minutes, though certainly the biggest event in the last 24-hours, wasn’t the only news moving markets. Oil prices rallied by over 4 per cent last night on data showing crude inventories contracted in the US, along with greater expectations that OPEC’s recently announced production cuts would lower global supply. The dynamic has supported the lift in equity markets, aided the narrowing of credit spreads, and pushed-up the yield on US 5 Year Breakevens, as traders re-price for higher inflation. Positive noises coming from US-China Trade negotiations also improved the outlook for growth, adding to the week’s positive momentum toward a trade-war resolution. The only major dark-point thus far this week has been the ongoing US Government shut-down, which is showing no signs of ending any time soon.
    ASX at crossroads: SPI Futures are pointing to a jump at the open for the ASX200 of 13 basis points, at time of writing. Much like the S&P500, the ASX200 sits just shy of a key pivot point for the market, between about 5780/5800. The market yesterday attempted on several occasions to breakthrough that level, only to find any such challenged faded. The ASX is still trading primarily on the lead handed to it by Wall Street, and if that relationship holds true today, a play above the 5780 level ought to be on the cards at the market’s open. From here, a close above 5800 will be hoped for by market-bulls, to validate a change in the short-term trend, and subsequently open upside to ~5950.

    The state of play today: The data-docket is light in the Asian session ahead. The positioning in markets today will largely be concerned with a speech scheduled to be delivered by US Fed Chair Jerome Powell tonight. The tide does feel to be turning in equity markets. Volatility is lower, and the bulls have had delivered to them what they’ve been crying for: good data and a dovish Fed. Debate will continue to rage between the bulls and bears about where markets go from here. The former suggests the worst of the shake-out is over, a bottom has been put in place, and there is more upside to come; the latter points to historical precedent to suggest we are just experiencing a bull trap, and the bear market has only just begun.
  21. MaxIG
    Bullishness rolls on: The bullish correction in financial markets continues, and global equity markets are rolling on. It’s a matter of contention as to why this rally hasn’t been faded, just in the short term. Stocks were oversold on a technical basis, and the market internals were very over-stretched at the deepest trough of the recent sell-off. An elastic band effect was expected – a brief snap back in to place. Perhaps complacency will bite at some stage, and the rally in risk-assets will prove a mere counter-trend. Analysing the price-action however, the buyers are controlling the market. Keys levels in several major share-indices have been tested and breached. Yes, without overwhelming conviction, but the technical breaks of resistance are there. One must respect the will of the market.
    Fear falling, confidence rising: Substance in the move higher is lacking, just at present. Fundamental justifications are emerging, though not in such way yet that justifies out-right bullishness in this market. Earnings season in the US has gotten off to a good start, with bellwether banks beating analyst forecasts thus far, and the overstated effects of Brexit have been contained. The meaty part of reporting season is still ahead of us, so evidence US corporates are in a better than expected shape remains wanting. The simple explanation for why market participants are more confident now is that they believe policymakers have their back. Separating the philosophical arguments about whether that ought to be proper reason to take-risk, invest and trade in a financial market, for self-interested traders, that’s enough of a cue to buy-in now.

    The political-economic power-axis: The economic and financial world rests on a tripartite axis of economic power: there’s the US, Europe and China. Every other national economy is in some way a satellite to these economic giants. The best set of circumstances for markets is when all three economies are growing and possess solid financial conditions. At-the-moment, only the US comes close to passing that test in the mind of traders. In the absence of solid fundamentals, the next best thing for markets to hear is that the powerful people in these economies intend to do something big about their problems. This week, and more-or-less since the equity market recovery has taken hold, that is what markets have gotten. After months of feeling abandoned, market participants now feel comforted by policymakers soothing assurances.
    Policymakers making the right noises: There has been delivered numerous announcements from key policymakers in the US, Europe and China. The US Federal Reserve has launched a concerted campaign to soothe markets’ nerves, going as far as implying interest rates will remain on hold until signs of greater financial and economic stability emerge. European Central Bank head Mario Draghi acknowledged in a speech this week that the Eurozone economy is sputtering but pledged that the ECB will stand-by with policy support if necessary. And China’s key-economic boffins have implemented a range of policies – from cutting the Reserve Ratio Requirement for banks, injecting cash through open market operations, and sweeping tax-cuts – which have done enough for now to prove to traders they are serious about tackling China’s economic slow-down.
    The G20 meeting: The temporary reliance on policymakers to support market sentiment will be put to the test to end the week. Global financial leaders will meet in Tokyo to discuss global economy and the financial world at the latest G20 meeting, in what will certainly be scoured for signs of unity and conviction of purpose. These events are often talk-fests, with little coming out of them more than a rosy-joint press release. But with the way markets have been behaving since the start of January, this may be all that market participants need to keep talking risks and buying back into equities. Talk of stimulatory fiscal policy, looser monetary policy, and better yet, the reduction of trade barriers (read: ending the trade war) will underwrite such risk appetite.
    The test of fundamentals: Of course, it’s too reductive to suggest that market activity hinges in the immediate future on the outcome of this G20 meeting. Fundamentals will have to come into play and drag sentiment, wherever it goes, back to reality, whatever that happens to be. The good thing is too, that markets won’t have to wait long to get that reality check. Earning’s season is ramping up now, and while some of the more popular companies haven’t yet reported, some important information is being gleaned. In a positive development, Goldman Sachs reported before the US open last night, and broadly beat expectations by way of virtue of solid results in its M&A division. The numbers further eased concerns that the US banking sector, and therefore US economy, is in an increasingly tough-spot.
    Wall Street to the ASX: The sentiment boost there has lead Wall Street higher, supporting what at time of writing looks like an 8-point gain for the ASX200 this morning, according to SPI Futures. Promisingly, the benchmark S&P500 continues its grind through a marshy resistance zone between 2600-2300, which if traversed, will add weight to the notion US stocks have executed a recovery. The ASX200 is arguably a little further down the true-recovery path: yesterday’s trade saw the Aussie index add 0.35% to close at 5835. Buyers ought to become thinner at these levels, with the daily RSI close to flashing an overbought signal. The next key level to watch out for is approximately 5870 based on a read on the hourly chart, however resistance there doesn’t shape-up as particularly firm.

    Written by Kyle Rodda - IG Australia
  22. MaxIG
    Bullishness settles: The ASX200 was sold into the close on a day where the market's bullishness stalled. Nevertheless, the index ended the day in the green, adding 10 points. It's a very headline driven market currently, and the finger is being pointed to news that the US and China are squabbling over intellectual property protections as the cause for the cooler sentiment. US markets were closed for the Martin Luther King Day public holiday, so the lack of tradeable information probably hindered the market too. But almost universally yesterday, financial markets traded on markedly lower activity. The ultimate result was an overall down day for stocks, a mixed day for bonds, a tinge of a bid for safe-haven currencies, while commodities were higher underpinned by well-supported oil prices.
    ASX set for flat start: SPI futures are positioned for the ASX200 to open flat-to-very-slightly-higher come today's open. It's a resilient market at present, with the trend line derived from recent lows looking clean and dutifully respected. The bulls guided the-200 above the 5900-mark for the first time in roughly two months yesterday. As widely expected, the market met resistance at the index's 200-day EMA around 5909 during intraday trade, registering a daily high only a skerrick above that point. Yesterday’s daily candle indicates one slightly more vulnerable to bearish control in the very short-term: the sellers overwhelmed the buyers into the back end of the day, bringing about a close in the green, but well-off the day's high.

    A strong start in 2019 for the ASX: Sifting through the ASX on a sector-by-sector basis, and the activity in the market indicates the burgeoning hope and bullishness of traders. Year-to-date, the energy sector has paced the gains, led naturally by oil’s recent recovery. While the high-multiple information technology and health care sectors, and the growth-sensitive consumer discretionary sector, also sits high on the table of year-to-date returns. Perhaps unlike US equity markets, the buying in Australian equities lacks evidence of deep conviction, as revealed by relatively lower breadth and volumes so far this year. Regardless, this phenomenon could be waved-off as reflecting normal trading dynamics: January tends to be a month of lower activity when compared to other stages of the year.
    The latest in Brexit: Brexit developments were high on the agenda overnight. Following the profound defeat in last week’s “meaningful vote”, UK Prime Minister Theresa May delivered to the House of Commons her amended vision for a way forward for Brexit. Maybe to the chagrin of traders, little of substance again could be gleaned from the UK House of Commons. The spectacle displayed the same partisanship, gridlock and frustration exhibited last week. Despite this, the Sterling maintained its recent rally and the yield on UK 10 Year Gilts stayed above the 1.3 per cent. Markets still hold the belief that the political dysfunction will force an extension of Article 50 and a delay of Brexit; or even another referendum (despite PM May denying such an event will go ahead), with recent polling suggesting a victory to the Bremainers if it were to occur.

    Chinese data goes to plan: Turning attention to global-macro themes in the past 24-hours, and the most watched fundamental news was China’s economic data-dump yesterday. In the lead-up, it was a potential make-or-break situation for growth-sentiment, and a potentially pivotal set of numbers for the global growth outlook for early 2019. Lo and behold, despite the high anticipation, upon their release, little came from the data. As far as traders were concerned, the figures received came-in at expectation: China’s economy is slowing (GDP printed 6.4 per cent) but at a rate that was already implied in market pricing. There wasn’t much of a kick-up in many parts of the market after the news. Chinese stocks rallied half-a-per cent, bonds fell slightly, and the Yuan dipped – though that may be due to a stronger USD.
    Global growth downgrade: The news pertaining to global growth that proved of greater import was the IMF’s downgrade of its expectations for global GDP in 2019. It’s the second downgrade in three months from the institution, and this time highlighted the impact of Europe’s economic slow-down as being a major cause for concern. Of course, the trade-war has been highlighted as a drag too – Europe’s troubles could well be tied back to that issue, anyway. The drop in the continents economic activity poses challenges for European and global policy makers, as the ECB fights to normalize its monetary policy settings. As it stands, markets are still pricing in a 35 per cent of a rate hike from the ECB this year, but the odds are progressively diminishing.
    Eyes on the elite at Davos: It bares reminding that as a bloc, the Eurozone economy constitutes comparable economic output to the US. A slowdown in Europe will be a considerable drag on the global economy. World leaders gather in Davos beginning tomorrow and the subject-matter will be high on the agenda, along with the trade-war and tighter global monetary policy. How the economic and financial elite broach these issues will be closely watched by market participants. Financial markets at the core are being dictated still by concerns relating to a drop-off in global economic growth, coupled with the impacts of potentially tighter global monetary policy settings. Language will be scrupulously analysed by traders as world leaders speak – maybe in search for a market moving headline or two –  with sentiment liable to swaying on what and how something is said.
    Written by Kyle Rodda - IG Australia
  23. MaxIG
    Calmer trade, vigilance remains: The sense of cautious optimism in markets remains. Extreme swings in sentiment have been absent. Calm prevails, albeit within a mindset of greater vigilance. There hasn’t been a face ripping rally, nor a vertigo inducing fall, in global equities this week. The trading activity does feel distinct from that which was experienced in December. Fear and subsequent volatility is unwinding. The VIX continues to edge lower, though at a slower pace now. Several of the panic-inducing issues that drove the bearish activity in markets in the last quarter of 2018 appear to be progressing positively. But it’s understood that in the case of almost all these matters, ranging from slowing global-growth, to the trade-war, to Brexit and to Fed policy, that there is much more to unfold.
    US stocks await their test: An inflection point will arrive where market participants will have to decide whether to push this rally in global equities from simple bounce to true recovery. The United States stock market sits at the epicentre of financial market volatility right now and judging by the price action on the S&P500, we may be inching towards that point. Putting aside the nuance of individual geographies, the S&P500 has set the tone for trade in the rest of the world’s markets. As it stands, the index has demonstrated an initial higher low, following its recent bottom at 2350. The Bull’s fight really begins now, as traders eye a cluster of resistance levels between 2580 and 2630, which will determine in a big way whether this rally has legs.

    The risks and opportunities for US bulls: The impetus to get US stocks through that cluster becomes the question. We’ve arrived at this juncture courtesy of confirmation of a still-strong US labour market and a dovish-Fed. That is: good data, and (relatively) easy monetary policy conditions going forward. From here, to sustain the market’s run, that’s what the bulls want to see. There are several opportunities coming up toward the back-end of the week to test these two parameters. FOMC Minutes get released tomorrow, Fed Chair Powell speaks on Friday, and US CPI data is released early Saturday morning (AEDT). Moderate inflation and a cool, supportive and deliberate Fed is what bulls are after. An overshoot of the former (which isn’t expected) and a more Hawkish tone from the latter could drag the rally-down.
    Geopolitics: trade-war and Brexit: There are a couple of other not-so-fundamental macro-events that may also dictate sentiment. The trade-war and the ongoing negotiations between the US-China in Beijing is one; the other – and this is very much secondary to the trade-war – is Brexit and the upcoming “meaningful vote” on a Brexit bill in the UK House of Commons. Trade war negotiations are progressing well, from what is being reported: talks have been extended another day, as China’s top economic policy maker, Liu He, joined the fray in the past 24 hours. Brexit is looking far less optimistic. In-fighting and chaos remain in UK Parliament and in the Tory party, in-particular. Article 50 looks as though it could be extended, however a no-deal Brexit still appears the likely outcome at this stage.
    Risk remains “on”: The confluence of stories has developed into a metanarrative that is supportive of risk-taking. It must be said that the fundamentals haven’t changed that much, however sentiment has shifted and markets are now playing follow the leader. The effect of this in the last 24-hours saw gains in global share-indices (with the notable exception of China), another leg lower in global bonds, a lift in commodity prices, a contraction in credit spreads, and a bid-higher of riskier growth-currencies. The US Dollar climbed slightly overnight, but that was mostly due to a weaker EUR and Pound following Brexit developments and very weak German Industrial Production data. Gold, the proxy for risk throughout the recent market volatility, continued its pullback courtesy of the stronger greenback and generally lower risk-aversion.

    The ASX200’s climb: SPI Futures are pointing to a lift for the ASX200 this morning, of about 19 points. The Australian share-market is demonstrating activity still below average, though well within the normal range for this time of year. Nevertheless, the bulls did well to maintain control of the market yesterday. Following a sputtering start that saw the ASX200 dip below its opening level, the buyers wrestled control of trade, and after several attempts, managed to push the index clear of resistance at 5700. Breadth was solid at a 70.5 per cent, and every sector finished in the green for the day’s trade. Promisingly too, two of the better performing sectors were health care stocks and information technology stocks, revealing an appetite for growth by investors.
    The Aussie market’s test: Like its US counterpart, the ASX200 confronts a handful of resistance levels that mark potential inflection points. The resolve of the bulls has proven ample this week in general: downward sloping trend-lines have been broken, and yesterday the index managed to close above its 50-day moving-average. Such with the S&P500, a higher-low has been established in the price, follow the recent bottom at 5410. The hurdles for the market in its bid to prove a recovery in the day ahead is twofold: major trendline resistance, traced back to the ASX200’s decade-long September high, exists at a scratch above 5670, before a play to 5780-5800 exposes itself. A break and hold above these levels will add credence to the notion a bottom has been formed in the market.

    Written by Kyle Rodda - IG Australia
  24. MaxIG
    Other central bankers throw their weight around: After the US Fed exited the ring yesterday, some of the world’s other heavyweight central-bankers weighed-in on the global race-to-the-bottom for global interest rates. The BOJ met yesterday, and though they kept their policy entirely untouched, it Governor Haruhiko Kuroda affirmed his commitment to monetary stimulus if necessary. RBA Governor Philip Lowe also delivered a speech, in which he was explicit in his belief that lower interest rates were necessary to absorb “spare capacity” in the labour market”.  And the Bank of England met last night, left interest rates on hold, but downgraded its forward-outlook, prompting increased bets of a rate-cut from the BOE this year.
    Notable price action: Risk assets rallied, while sovereign bond yields fell, the USD tumbled, and gold spiked as a result of the dynamic. The S&P500 touched all-time highs, and the ASX200 registered its own 11-year highs, as the prospect of easy-money the world-over whet investors risk-appetite – though SPI futures this morning a suggesting that enthusiasm will cool on the ASX, with ASX200 looking at a flat open. It wasn’t all smooth sailing it must be said. Nerves were rattled on news that Iran had shot down a US drone over the Straight Hormuz, causing a spike in oil prices on fears of conflict in the region.

    Rio saps some of the positivity from the market: The materials sector failed to capitalize fully on yesterday’s Fed induced bullishness. The responsibility for this laid at the feet of Rio Tinto, after the heavily-weighted mining-giant announced a paring-back of its iron ore output forecasts, owing to “mine operational challenges” being experienced by the company at a key mine in the Pilbara region. The news sent Rio shares down by over 4 per cent at stages yesterday; and, perhaps ironically, gave a little lift to iron ore prices, which had been showing signs of potential weakness, following the announcement by miner Vale that it would be re-opening one of its largest Brazilian mines.
    Australian rates keep falling: The increasing prospect of looser global monetary conditions, as well the dovish commentary from our own central bank Governor, worked its way into Australian rates markets yesterday. Bets for rate cuts from the RBA lifted modestly, with the implied probability of rate cuts for next month jumping to around 70 per cent, with 2-full cuts from the RBA before year-end priced in their entirety, right now. This sparked significant moves at the front end of the AGB yield curve: the rate-sensitive three-year note fell by another 4 basis points, to clock a fresh all-time low of 0.91 per cent.
    AUD pops courtesy of weaker USD: Despite this, the AUD tested life above the 0.6900-handle yesterday, as an even hastier fall in US Treasury yields enervated the US Dollar. An ominous milestone: the yield on the benchmark US 10 Year note fell below 2 per cent for the first time in more than two-and-a-half years, while the yield on the US 2 Year note dipped to around 1.73 percent. The fall in US yields at the front end of the curve narrowed the spread between US Treasuries and it Australian equivalent to around 78-basis points (briefly), and has underpinned the little rally witnessed in the Aussie Dollar in the last 24 hours.

    Gold hits new highs: Arguably, the greatest beneficiary of this week’s concertedly dovish stance from global central bankers has been gold. The price of the yellow-metal hit a 5-and-a-half year high yesterday, as the USD tipped-over, and global interest rates fell. Importantly, too, from a technical basis, the gold price punctured resistance around $US1360, and came close to hitting the key psychological level of $US1400.00. Though the broader narrative is supportive for gold, the price action is looking somewhat exuberant now: the daily RSI is giving an overbought signal, and the price is divorcing itself from fixed-income markets slightly, suggesting that speculative flow has seized control of the price.
    The latest readings on global growth: Attention will turn back to the global growth outlook today, ahead of tonight’s release of European Manufacturing PMI data. Markets are expecting another contractionary print in the key German and Europe-wide readings of the data, as the US-China trade-war, along with the continents ongoing structural issues, weigh on Europe’s economic activity. The Euro will be in focus around tonight’s data: markets are warming towards the prospect of rate-cuts from the ECB. A deteriorating outlook for the German and European economies could increase these bets, and sap the shared currency; while a better than expected print would likely fuel its recent pop higher.
    Written by Kyle Rodda - IG Australia
  25. MaxIG
    China’s data inspires relief: The Middle Kingdom was at the centre of financial market focus yesterday. Informally dubbed the “monthly economic data-dump”, market participants were granted the opportunity to test the thesis that the global economy’s Q1 malaise is turning around. And though it was only one set of numbers, the answer received from the Chinese data to this quandary was to the affirmative. China’s GDP figures beat economist’s estimates, printing at 6.4 per cent against the 6.3 per cent forecast; and the litany of other data-points, most notably retail sales, industrial production and fixed asset investment, all either exceeded forecasts, or showed signs of improvement.
    The global economy’s resurrection? The Chinese data has added further credence to the notion that China’s economy, and therefore that of the rest of the globe, isn’t about to fall off the cliff. Judging by the improvement in the numbers, policymakers intervention and receptiveness to market and economic trouble, not just in China but globally, is apparently feeding through into economic activity. Although global equities, and especially Chinese equities, resisted reacting to the good news – the lower likelihood of greater monetary stimulus can explain that one – growth exposed assets conveyed the market’s greater optimism and risk appetite, boding well for risk-assets into the longer term.
    Traders bet on economic turnaround: As always, we need not look any further than our Australian Dollar to judge the merits of this case. Granted, it’s cooled its intraday rally somewhat now, but the local currency spiked upon the release of the Chinese data yesterday, breaking through (briefly) its 200-day moving average, and experimenting for a while with a life above the 0.7200 handle. The enthusiasm for the Australian Dollar was tempered overnight, as traders factored in more fundamental concerns pertaining to the Australian economy into market pricing. Nevertheless, the brief spike in the market’s favoured growth proxy proved that traders aren’t averse to placing bets on a global economic turnaround.

    Sentiment overriding A-Dollar’s fundamentals: Sticking to the Australian Dollar, and a reflection on the currency’s fundamentals portrays the opposing forces driving its price action, at present. In fact, market-action yesterday reflected the “growth-proxy” versus “weak-fundamentals” dilemma well – with the latter proving an inhibitor of the enthusiasm demonstrated by the former. Prior to the Chinese data release, the Aussie-Dollar looked ready to shed its recent gains, after New Zealand CPI figures notably missed economist’s estimates. The response from traders to that release was to price-in more aggressively rate cuts from the RBNZ and, due to belief the New Zealand and Australian economies share major commonalities, the RBA, too.
    Iron ore retraces its gains: Another driver of A-Dollar upside went missing yesterday, too: iron ore prices have rapidly retraced their recent gains, falling over 7 per cent from its recent highs. The tumble in the price came counter to the intuitive logic that perceived improvements in the global economy ought to lead to a lift in commodity prices. Proving once more that iron ore’s rally has been a function of supply shocks rather than economic fundamentals, the market sold contracts for the mineral after news hit the wires Vale would be reopening one of its major Brazilian mines, potentially marking the beginning of the end of underproduction in that market.

    Fall in iron ore prices drag on the ASX: Naturally, iron ore’s fall legged materials sector stocks yesterday. It was one factor, combined with the rallying Australian Dollar and slight lift in discount rates, that lead to an overall fall in the ASX200. The theme seems likely to continue today, too. According to the SPI Futures contract, the index ought to drop about 21 points at this morning’s open. Today may prove one of those days where the markets direction is determined by the resilience of the banks: financial stocks added 17 points to the ASX200 yesterday, masking a weak day for Australian stocks, which traded on less than 40 per cent breadth.
    A busy day leading into the long weekend: Trade across the rest of the globe in the next 24 hours may well be dictated by pre-positioning for the Easter weekend holiday. Wall Street trade was characterized by relatively higher activity overnight, but the results were underwhelming, with the S&P500 dropping 0.23 per cent, and (fittingly) closing bang-on 2900. Despite the assumed reluctance from traders to make big bets leading into a long weekend, economic data will be dense: Australian employment figures are released this morning, before focus turns to a swathe of high impact European PMI numbers, and US Retail Sales data tonight.
    Written by Kyle Rodda - IG Australia
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