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The bulls remain out in force, pushing Wall Street higher overnight. It sets up the ASX for more gains this morning, with futures at 7.45am AEDT pointing to a gain of 27 points, or 0.4 per cent, at the open.
1. Sentiment remains strong in global markets: Bullishness remains high in financial markets, to begin this trading week. The stars aligned last week, and gave traders as good as any reason to take risk-on to year-end; and that saw stocks rally again overnight, in what’s been another day of high activity. The news-flow wasn’t all that positive to kick-off the week, it must be said, with global manufacturing figures undershooting expectations. Nevertheless, that’s been shrugged-off, and the ASX200, for one, ought to open higher today. The day ahead now will be highlighted by the release of the RBA’s December meeting minutes, which come nicely timed after yesterday’s disappointing MYEFO release.
2. Everything seems to have fallen nicely into place: Markets are still behaving as if all the risks have all fallen into place. The US and China trade-deal is naturally the biggest factor driving market prices. But the optimism regarding Friday’s UK General Election result is clearly still being baked-into the market, too.
And on top of that, central bankers have given the green light to traders that financial conditions will remain as accommodative as can be reasonably be expected into the new year. Lower uncertainty, better growth and cheap money is practically all the market needs to pile into risks assets. For now, all three of those boxes have been emphatically ticked.
3. Stocks in the US and Europe touch record highs: This dynamic has manifested in high activity, and further rallies in global stock indices. The S&P500 has touched new record levels, while certain European benchmarks have achieved the same. Asian indices, especially the Hang Seng and Nikkei, have outperformed, helped yesterday, modestly, by China’s better than expected monthly data “dump”.
That too has underpinned a rally in the Aussie Dollar, and other growth currencies, along with a sell-off in the Yen and USD. Gold prices have remained remarkably steady, especially given another push higher in bond yields yesterday. While oil prices edged higher, and other growth-sensitive commodities are holding onto short-term uptrends.
4. Global PMI data disappoints, but was shrugged off: In terms of overnight news, things weren’t all that rosy. The interest was in a spate of global manufacturing PMI gauges, and generally speaking, they printed to the downside. The worst of the lot was the European numbers.
Manufacturing activity in the UK, France, Germany and broader Europe were shown to have contracted by greater than expected, throwing cold water on the notion that global business activity is turning around. Despite this, market participants shrugged off the negative news. It would appear the market is banking on the idea that the end of trade-war and Brexit uncertainty ought to be enough to turn this trend around, in time.
5. ASX puts in one of its best days of 2019: The ASX200 hasn’t been deprived of the wave of optimism driving market activity. It put a strong showing yesterday, resulting in one of the strongest day’s for the benchmark’s index in 2019.
Fundamentally, local traders were still basking in the afterglow of Friday’s trade-war and UK election news. But other factors juiced up yesterday’s rally. Bond yields dropped considerably, mirroring moves seen in the US on Friday, and boosting stock market valuations. The currency was also marginally weaker consequently, which also supported the market. And China’s solid data proved the cherry on top, with the ASX200 climbing 1.6 per cent by the end of Monday’s trade.
6. RBA Minutes highlight the day’s trade: As far as just the Asian session goes, traders turn their attention, very slightly, to the release of the RBA’s December minutes this afternoon. The lens this commentary will be viewed through, a question: how close was the RBA coming to cutting rates at this meeting?
Domestic fundamentals are undoubtedly soft. And although some level of hope has arisen about Australia’s economic outlook because of a forecast turnaround in the global economy, traders remain of the view the RBA will have to cut rates again in the new year. Traders are currently of the view that the next cut will probably come in March.
7. MYEFO shows slowdown, need for stimulus: The notion that the Australian economy needs more stimulus was supported by the release of yesterday’s MYEFO. Although the numbers published were really just falling into line with what the market had already priced-in itself, it’s a reminder that domestic economic conditions are stubbornly weak.
Growth ought to be below trend next year, and that’ll keep jobs and wages growth subdued. The projected surplus was cut to $5b, too. To achieve trend growth, let alone anything close to full employment, and at target inflation, fiscal levers need to be pulled, too. The market will be hoping that this ought to come by May’s budget.
8. Market watch:
ASX futures up 23 points or 0.3% to 6872 near 6.30am AEDT
- AUD +0.2% to 68.92 US cents
- On Wall St near 2.30pm: Dow +0.5% S&P 500 +0.8% Nasdaq +1%
- In New York: BHP +2.1% Rio +2% Atlassian +1.2% Apple +1.8%
- In Europe: Stoxx 50 +1.1% FTSE +2.3% CAC +1.2% DAX +0.9%
- Nikkei 225 futures +0.6%
- Spot gold -0.1% to $US1475.13/oz at 1.14pm New York
- Brent crude +0.5% to $US65.55 a barrel
- US oil +0.3% to $US60.23 a barrel
- Iron ore -0.6% to $US94.04 a tonne
- Dalian iron ore -1% to 646 yuan
- LME aluminium +0.6% to $US1778 a tonne
- LME copper +1.1% to $US6199 a tonne
- 2-year yield: US 1.64% Australia 0.77%
- 5-year yield: US 1.71% Australia 0.79%
- 10-year yield: US 1.89% Australia 1.15% Germany -0.28%
- 10-year US/Australia yield gap near 5.30am AEDT: 74 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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