Global markets settled somewhat overnight but Wall Street kept its winning streak going, setting up the Australian sharemarket for another positive start to its session. At 7.45am AEDT, futures are pointing to a gain of 21 points, or 0.3 per cent, at the open.
1. Activity in financial markets is settling down again: Market activity is appearing to normalise, after several days of what might be called financial market revelry. The surge higher in equity indices has abated, at least for now, with the ASX200, for one, closing bang on flat yesterday. That was despite the release of RBA minutes that kept the door ajar for a rate cut in February.
There was somewhat sobering news that created this dynamic, and it related to some of the harsh Brexit risks awaiting traders 2020. Attention will stick with the UK economy tonight, as traders prepare for several days of high impact economic news out of the country.
2. There are still signs of fundamental repositioning in markets: Stock market activity is still very high, it must be said. Volumes were well above average, showing that there is indeed a fundamental repositioning going-on in the market after last week’s trade-war and Brexit developments.
Though unlike Friday and Monday’s trade, upside was a little more limited in equity indices last night, as the impact of all this good news waned. Asian indices, which stand as the greatest beneficiaries of a de-escalating trade-war, registered solid gains. However, European stocks pulled back, from what were record highs in some cases, and Wall Street equity indices closed flat, if not marginally higher, last night.
3. Positivity the prevailing sentiment at the moment: There remains an overall positive tone to market activity. And last night’s news flow, although hardly top-tier in nature, added modestly to the optimism. US housing and industrial data beat expectations, while the UK unemployment was revealed to have fallen last month.
Price action in currency, rate and commodity markets was a touch mixed though. Bond yields climbed in the US, but fell across Europe. Oil and copper prices were higher, but gold remained steady. Commodity currencies dipped though, and the Yen edged-up slightly. The USD and Euro both caught a bid, largely because of a reasonably significant fall in the Pound.
4. The Pound falls back to earth as Brexit realities bite: The Pound’s sell-off came courtesy of some sobering Brexit related news, yesterday. A large degree of the optimism engendered by Friday’s UK General Election result was wiped out of the market, upon reports that UK PM Boris Johnson would be tabling legislation that would legally stop any possible extension to the Brexit “transition period” next year.
It’s probably an act of bravado, brinkmanship and negotiating-nouse from the UK PM. Nevertheless, it provided a reminder to the market that Brexit induced volatility isn’t relegated to the history of the 2010’s just yet. The Pound tumbled over 1 and a half per cent yesterday, as-a-result.
5. UK markets to become more about macro-fundamentals now: A degree of interest will be directed towards UK economic fundamentals now. Building from last night’s jobless data, traders welcome a spate of tier-1 economic data out of the UK in coming days, including inflation figures this evening.
Greater import will be placed on macro-data in the UK, now Brexit risks have been deferred to the end of 2020. And there are still signs of weakness in the economy, that’s leading many to believe a Bank of England rate cut is on the cards next year. As it presently stands, the market has priced in just about fully that the BOE will cut by November 2020.
6. RBA keeps the door wide open for a February rate cut: The RBA’s minutes for its December meeting was the highlight of yesterday’s session. And what was contained within the document would have surprised very few. The RBA stuck to its line that the economy is at “gentle turning point”, but that rates will probably remain low for an “extended period”, and can still be lowered if “if necessary”.
A little comment from the RBA was somewhat novel, and caused some small ripples in the market. The central bank suggested it would review its policy position and economic forecasts at its next meeting in February – something of a subtle cue that a rate cut will be considered at that meeting.
7. ASX200 poised to have a crack at fresh record highs: That tit-bit of information saw traders up their bets once again of a rate cut come February to about a 50 per cent chance. That saw the Aussie Dollar sell-off yesterday, to be trading in the mid-68 handle this morning.
The effect on the ASX200 of greater odds of an imminent RBA cut was rather limited, however. It traded dead-on flat on Tuesday, as the benchmark index shirked a run to fresh record highs. A push higher could be on the cards today, however. SPI Futures are predicting that the market ought to open a healthy 28 points higher this morning, to come within touching distance of all-time highs.
8. Market watch:
ASX futures up 21 points or 0.3% to 6867 near 7.45am AEDT
- AUD -0.6% to 68.47 US cents
- Sterling -1.6% to $US1.3124
- On Wall St near 3.45pm: Dow +0.2% S&P 500 +0.1% Nasdaq +0.1%
- In New York: BHP +0.3% Rio -0.1% Atlassian -1%
- In Europe: Stoxx 50 -0.7%% FTSE +0.1% CAC -0.4% DAX -0.9%
- Nikkei 225 futures flat
- Spot gold flat at $US1476.69/oz at 1.26pm New York
- Brent crude +1.3% to $US66.16 a barrel
- US oil +1.3% to $US60.98 a barrel
- Iron ore +US3¢ to $US94.07 a tonne
- Dalian iron ore -0.6% to 637 yuan
- LME aluminium -0.8% to $US1764 a tonne
- LME copper flat at $US6200 a tonne
- 2-year yield: US 1.63% Australia 0.74%
- 5-year yield: US 1.71% Australia 0.77%
- 10-year yield: US 1.89% Australia 1.15% Germany -0.30%
- 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.
Source: Thanks smh.com