Another sluggish day on Wall Street sets up the ASX for falls this morning. At 7.55am AEDT, futures are pointing to a drop of 36 points, or 0.5 per cent, at the open.
1. US corporate data weighed against trade-news The benchmark S&P500 closed Wall Street trade effectively flat overnight, off the back of a night’s trade counterbalanced by disappointing corporate results, and positive trade-war news. Despite what’s been an unremarkable start to the week for US stocks, sentiment indicators are still pointing to a prevailing bullishness in the market right now.
The US Dollar dipped with US Treasury yields, seemingly after Monday’s meeting between Fed Chair Jerome Powell and US President Donald Trump. And the ASX200 looks as though it’ll follow its own path this morning. SPI Futures are pointing at a soft open, after RBA minutes sparked a rally in local equities yesterday.
2. Concerns emerge about strength of US consumer: US stock indices took a spill in early Wall Street trade, following the release of a set of a disappointing numbers from consumer giants Kohl’s and Home Depot. Both companies cut their forecasts for the year ahead, as well as revealed quarterly sales numbers that missed market expectations.
Though the effects were fleeting, the news pricked concerns that the US consumer may be finally starting to show signs of weakness. As is well known, strong consumer activity has underpinned positivity towards US economic fundamentals. Any sign that this dynamic may be turning adds credence to the notion that the US economy is heading into “late-cycle”.
3. Trade-war developments steals the narrative again: Aside from the Dow Jones, which finds itself weighted heavily to Home Depot’s share price, the sell-off last night in US stock indices proved short-lived. Saving the day again was fresh trade-war news. Of course, this time of the positive variety, today’s headlines suggested the US and China are benchmarking possible tariff roll-backs against the terms of an agreement crafted back in May.
The actual details beyond this are vague – and price action last night probably reflected traders simply playing with headlines. But it shows that the bias in the market remains skewed to a deal getting done – and the desire to push stock indices higher is high.
4. Market sentiment still tangibly positive: So much might be revealed in a handful of sentiment indicators in the market. For one: the VIX remains low, registering a modest 12 reading currently, as fear and uncertainty stays tangibly absent from the market.
On top of this, though it has crept higher in recent days, the CBOE equity put/call ratio is very low, pointing at a market with its risk appetite whetted, and prepared – at least emotionally – for greater upside. Now, these indicators are often used as contrarian guides, and are best used as measures of complacency. Nevertheless, it reveals are US stock market quiet optimism about the likely outcome of trade-talks.
5. Dollar gets a jawboning from US President Trump: While certainly still in its broader uptrend, the US Dollar has received a little smackdown to start the week. It would seem traders took to heart commentary made by US President Donald Trump after his meeting with US Federal Reserve Chairperson Jerome Powell.
Tweeting further clarification yesterday on what the meeting involved, the President “I protested fact that our Fed Rate is set too high… Too strong a Dollar hurting manufacturers & growth!”. The market is obviously taking Trump at his word, selling the Dollar yesterday, as traders assume the pressure heaped on the Fed by the President this year is unlikely to end any time soon.
6. ASX ought to drop after yesterday’s big climb: Despite Wall Street’s flat – even positive – moves overnight, the ASX200 is looking poised to shed around 40 points at this morning’s open. There’s no clear impetus for this, although a touch of softness in commodity prices might be pointed-to.
Possibly, the expected sell-off at the market’s open today reflects a little give back after what was quite a big rally yesterday afternoon, following the release of much more dovish than anticipated RBA Minutes. The drop-in bond rates consequent to the publishing of that data saw a broad-based rally in Australian stocks, with consumer sectors and defensives the outperformers on the ASX as-a-result.
7. RBA Minutes reveal the next rate cut closer than thought: The real surprise from the RBA’s minutes was the revelation that the central bank seriously considered cutting interest rates at the November meeting. The market had put the RBA safely in the “wait-and-see” basket after that meeting, buying-into its “gentle-turning-point” rhetoric.
While the RBA clearly wish to wait for the impacts of prior cuts to filter through the economy before easing rates again, it is perhaps closer to doing so than previously assumed. As of this morning, market pricing is suggesting that a cut in December is 23 per cent chance, with a cut by May next year given 70 per cent odds.
8. Market watch:
ASX futures down 34 points or 0.5% to 6787 near 7.45am AEDT
- AUD +0.2% to 68.26 US cents
- On Wall St about 3.45pm: Dow -0.3% S&P 500 flat Nasdaq +0.3%
- In New York: BHP +1% Rio +0.9% Atlassian +1.6%
- In Europe: Stoxx 50 -0.2% FTSE +0.2% CAC -0.4% DAX +0.1%
- Nikkei 225 futures -0.1% Hang Seng futures -0.5%
- Spot gold +0.2% to $US1474.77/oz at 12.50pm New York
- Brent crude -2% to $US61.21 a barrel
- US oil -2.4% to $US55.66 a barrel
- Iron ore +US3¢ to $US85.80 a tonne
- Dalian iron ore +0.3% to 633.5 yuan
- LME aluminium -0.4% to $US1731 a tonne
- LME copper +0.8% to $US5875 a tonne
- 2-year yield: US 1.59% Australia 0.74%
- 5-year yield: US 1.62% Australia 0.78%
- 10-year yield: US 1.78% Australia 1.13% Germany -0.34%
- 10-year US/Australia yield gap near 4.30am: 65 basis points
This column was produced in commercial partnership between The Sydney Morning Herald, The Age and IG
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Information is of a general nature only.
Source: Thanks smh.com