[email protected]: ASX set to rise after reports of US-China trade breakthrough
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The Australian share market is expected to open higher after Wall Street rallied overnight amid reports the US and China have reached an “in principle” deal to end their 17-month trade war.
The SPI200 futures contract was up 22 points, or 0.3 per cent, at 6,725 at 7:45am AEDT, suggesting a positive start for the benchmark S&P/ASX200 on Friday.
On Wall Street, the Dow Jones Industrial Average was up 0.77 per cent, the S&P 500 was up 0.69 per cent and the tech-heavy Nasdaq Composite was up 0.50 per cent.
“Getting VERY close to a BIG DEAL with China. They want it, and so do we!,” US President Donald Trump tweeted overnight.
The White House has reached a “deal in principle” with Beijing, a source briefed on the trade talks said this morning Australian time. The White House was expected to make an announcement within hours, the source said.
The Aussie dollar is buying 68.99 US cents from 68.81 US cents on Thursday.
The long and short of it
1. Markets become bullish on trade deal news: Wall Street went into a frenzy overnight: it’s been reported a deal between the US and China has been achieved. Feeling cynical about that one? You’re not alone. But nevertheless, markets are reacting, and that’s seen Wall Street stocks touch new record highs, and that’s setting the ASX for gains today. Risk appetite was also supported by last night’s ECB meeting, at which Europe’s central bank kept rates on hold, but signalled an openness to more economic stimulus. Now during today’s session, markets will be following the British election in hope of seeing a result that will indeed just “get Brexit done”.
2. A “deal in principle” reportedly achieved: It was risk-on in global markets last night. US President Donald Trump, and members of his administration, are clearly setting expectations for a breakthrough in trade talks, and building up hopes in the market of something of a Santa Claus rally. Optimism was initially stoked by a tweet from the US President that a “big” deal was “very close”. And it was then compounded by reports from Dow Jones Newswires that this deal would also include a significant 50 per cent cut to existing tariffs by the US on Chinese imports. The most recent reports: a “deal in principle” has been achieved, and is awaiting sign-off by President Trump.
3. Some doubters remain in the market: When trade and foreign policy is conducted through social media, especially when such messaging has been proven the Trump administration’s mendacity before, it’s understandable to feel cynical about last night’s news. It could all be bluster, and an attempt to control the narrative in trade talks and wedge China’s negotiators into signing a deal. Even still, it could be the US President’s attempts to juice up the stock market, as he’s wont to do, to build confidence in the US economy and create a saleable story around his administration’s success. Both the intent and outcomes are still unclear; fortunately, it’s only a few more days until the truth is known.
4. US stocks hit new record highs: Activity surged across global financial markets irrespective of the trade talk stories’ credibility, with some major market moves occurring. First and foremost, Wall Street stocks rocketed to new record highs. Bond yields tumbled, with the yield on the benchmark 10-year US Treasury note dropping almost 10 points. The Japanese yen rallied by over 1 per cent against the US dollar. The Australian Dollar managed to move higher despite the stronger greenback, and trade near the 69-cent level. Oil prices lifted by over 1 per cent, too, copper prices edged 0.25 per cent higher and gold lost around half a per cent, as traders moved to place bets on a global growth turnaround.
5. ASX to open higher, though signs of euphoria absent: The ASX200 is looking poised to absorb some level of the overnight bullishness, with the index expected to open around 20 points higher this morning. That’s not an exuberant move, and surely not one that’ll do much to erase yesterday’s 0.65 per cent loss. Along with the consequences of a stronger Aussie dollar, the ASX200 moved in a familiar range yesterday. It’s been the one that’s more or less confined the index within a roughly 50-point range for the better part of the week. As hopes build for a trade deal, perhaps a hard-and-fast confirmation of a US-China truce is needed before the market really gets moving.
6. ECB President Lagarde strikes an owlish tone: In other news that proved notionally supportive of market sentiment, the ECB met overnight, and inspired confidence that it remains committed to re-invigorating the Eurozone economy. The key issue going into the meeting was seeing new President Christine Lagarde’s vision for the region’s economy. And judging by the market price action, she passed. Rather than a hawk or dove, President Lagarde described herself as an “owl” who would be open to different views and ideas on how to enact ECB policy. This means embarking on a strategic review of European economic policy to find new ways of reviving the region’s economy.
7. The British election: will Boris get his Brexit mandate? Awaiting official confirmation of a trade deal will probably be the market’s highest priority today. But significant focus will remain on the UK general election today, as the Brits go to the polls in what’s being treated as a proxy vote on Brexit. A Conservative Party win is looking highly likely, according to betting markets. The key issue though is a matter of margin: can Prime Minister Boris Johnson win a clear majority, and with it, a categorical mandate for his Brexit deal? The British pound will be the barometer: it’s trading at $US1.31 this morning as traders take a punt on a Tory majority government.
8. Market watch:
ASX futures were up 22 points or 0.3% to 6725 near 7.45am AEDT
- AUD +0.2% to 68.90 US cents
- On Wall St about 3.45pm: Dow +0.8% S&P 500 +0.9% Nasdaq +0.7%
- In New York: BHP +1% Rio +1.1% Atlassian -1.5%
- In Europe: Stoxx 50 +0.5% FTSE +0.8% CAC +0.4% DAX +0.6%
- Nikkei 225 futures +1.2% Hang Seng futures +0.7%
- Spot gold -0.4% to $US1468.58/oz at 1.11pm New York
- Brent crude +1.2% to $US64.49 a barrel
- US oil +1.2% to $US59.44 a barrel
- Iron ore -0.7% to $US94.02 a tonne
- Dalian iron ore +0.8% to 657 yuan
- LME aluminium +0.9% to $US1775 a tonne
- LME copper flat at $US6155 a tonne
- 2-year yield: US 1.66% Australia 0.74%
- 5-year yield: US 1.73% Australia 0.75%
- 10-year yield: US 1.90% Australia 1.13% Germany -0.27%
- 10-year US/Australia yield gap near 7.45am AEDT: 77 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.
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