A lack of high impact news, or any general surprises, has deprived US equity markets’ of fuel to further power its rally. Rosy trade-war headlines no longer appear enough to embolden bulls and invite buyers into this market. And the Fed’s back-down to market-pressure over monetary policy settings implies that fear about tightening financial conditions has more-or-less been parked to one side for the foreseeable future.
3. Fundamental nuances to be analysed: Market fundamentalists are left to mull the combination of slower global growth and a weaker earnings outlook now. Vague insights regarding these subjects were searched for out of last night’s key risk event: US Fed Chairman Jerome Powell’s testimony before the US Senate Banking Committee. Perusing the headlines and there was very little new information to be gleaned from the event.
The word “patient” came-up again as the leitmotif of the address, along with the glib and perfunctory assurances that the Fed will stay “data dependant”. Perhaps most important of all, at least from a trader sentiment point-of-view, Chair Powell reiterated the Fed’s stance on its balance sheet: normalization can be adjusted if necessary.
4. The chattering (asset?) classes: It was probably a function of the general anti-risk sentiment yesterday, Powell’s testimony, and a general sense of listlessness in the market: the topic of the next US recession was doing the rounds. The chatter wasn’t inspired by much. A further flattening of the US yield curve following Powell’s speech could be fingered as being somewhat responsible. Nevertheless, the sense of forebody manifested in intermarket behaviour overnight.
Stocks, as has been covered, have thus far stalled their run. US Treasuries have climbed, and the fall in yields has Fed through to a fall in the USD against the other G4 currencies. The Yen was a broad-based climber. Commodities were collectively lower. And corporate credit has stopped its recent rally.
5. A burgeoning story to watch: Just to impress context here: the aforementioned moves weren’t that consequential. They were simply a part of the overarching narrative determining the day’s trade on Wall Street. A lot of what has so far been experienced in the last 24 hours is a function of markets simply doing what markets do.
There are a few evolving stories that could be worth watching, as potentially new risk factors driving market behaviour. An argument is being made that the gains in Chinese stocks is attributable to the change in perspective towards leverage in Chinese financial markets. It’s contended: Monday’s Chinese stock market rally came not consequent to trade war news, but to news China’s policymakers were ending their financial «deleveraging» campaign.
6. ASX200 cools off: As far as the Australian equity market goes, SPI futures are indicating a 27-point jump for the ASX200 this morning. In contrast to its US counterparts, the signals of a potential retracement for the ASX look starker.
Yesterday was a soft day for the ASX200, which on high volumes, shed 1.00 per cent for the day. Breadth was weak at 30.5 per cent, and every sector finished lower for the session. Financials naturally stripped the index of the most points, however a noteworthy 3.39 per cent fall in the lowly weighted consumer discretionary sector robbed the market of around 13 points. Momentum is threatening to cross to the downside now, while the RSI is flashing a sell signal here.
7. Latest Brexit update: True to this week’s form, a quick Brexit update is pertinent this morning. To borrow the language of the Brexiteers and other anti-establishment types: the “globalists” are wrestling control of the debate regarding Brexit.
Markets are taking kindly to the developments. In a speech overnight, UK Prime Minister May left the door open for a Second Brexit referendum far enough ajar for market participants to price in the prospect of Brexit not going ahead at all. It needn’t bare repeating how quickly the narrative can change when it comes to Brexit. But for now, traders are pricing in their optimism: bets of a BOE rate hike have increased, UK Gilts are up across the curve, and the Sterling has rallied.
8. Market watch:
SPI futures up 26 points or 0.4% to 6131 at about 7.15am AEDT
AUD +0.4% to 71.91 US cents
On Wall St at 3.18pm: Dow +0.2% S&P 500 +0.2% Nasdaq +0.2%
In New York, BHP +0.9% Rio +0.5% Atlassian -0.3%
In Europe: Stoxx 50 +0.3% FTSE -0.5% CAC +0.1% DAX +0.3%
Spot gold -0.2% to $US1325.22 an ounce at 12.54pm New York time
Brent crude +0.7% to $US65.24 a barrel
US oil +0.3% to $US55.62 a barrel
Iron ore -1.3% to $US83.75 a tonne
Dalian iron ore +1.1% to 600 yuan
LME aluminium +0.3% to $US1911 a tonne
LME copper +0.2% to $US6493 a tonne
2-year yield: US 2.49% Australia 1.71%
5-year yield: US 2.45% Australia 1.73%
10-year yield: US 2.64% Australia 2.09% Germany 0.12%
US-Australia 10-year yield gap as of 4.50am AEDT: 55 basis points
This column was produced in commercial partnership
between The Sydney Morning Herald, The Age and IG