[email protected]: Bulls return to send markets higher
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Global markets were higher overnight on a Fed official indicating that no rate increases by the central bank were expected in 2020 and continuing optimism over a looming US-China trade deal. However, a negative start to the session looks in store for the ASX, with futures at 7.40am AEDT pointing to a fall of 28 points, or 0.4 per cent, at the open.
1. Bullish sentiment keeps risk assets bid: Price action was bullish overnight. US stocks rose to fresh record levels last night, as some dovish commentary from a US Fed member kept the fire under risk and growth sensitive assets. The impeachment of US President Donald Trump did little to worry markets, with traders assuming that it’ll poses little long-term risk.
In other big news, the Bank of England met last night, and were a little more dovish than expected. And the ASX200 this morning is set up for a drop at the open, following yesterday’s 0.3 per cent spill, that came largely came as-a-result of better than expected labour market data.
2. Markets winding-up for the year, but positive prevails: There’s a touch of that holiday feeling creeping into the market right now. Volumes in Wall Street stocks have finally fallen closer in line with averages, after last week’s slew of positive market news saw investor rushing to buy equities into year end.
Overall, positivity remains high in global markets. The S&P500 managed to touch the 3200 mark in US trade. Oil prices have climbed to three-month highs, support now by both supply and demand side factors. And other risk sensitive assets in currency and credit markets betray a sense that the growth outlook ought to be a little stronger going into the new year.
3. Fittingly, S&P500’s fresh records come from Fed comments: The news that precipitated last night’s rally in stocks, fittingly, was Fed related. In an interview with the Wall Street Journal, Fed member James Bullard stated he’s “pencilled in” no rate increased by the central bank in 2020 – primarily on the grounds inflation pressures remain so low in the US economy.
As has been the fundamental cause for US stocks’ strength all year, the prospect of an extended period of accommodative monetary policy pushed bond yields lower last night, driving stock prices higher. It’s a precarious balance, but equities are prospering right now, on the basis of this regime of moderate growth and very low interest rates.
4. Trump impeachment does little to disturb the markets: The biggest story for financial media yesterday, though, was likely the impeachment of US President Trump. But entirely as expected, the vote to impeach the US President was treated as more side-show than risk-event. The US Dollar did dip very slightly when the impeachment news broke, however, the move proved transitory.
Essentially: markets see little risk in this impeachment process, because practically no one expects the Republican controlled senate to convict the President of any wrongdoing. Politics will certainly be an issue for the markets in 2020, as time winds down to the US election. However, right now, markets are treating it as little more than theatre.
5. Bank of England delivers a “dovish hold”: Of more fundamental importance overnight, the Bank of England met, and, as expected, left interest rates on hold. It’s been dubbed a “dovish hold” however, with the BOE’s voting committee voting 7-2 to keep rates steady– those two members, of course, voting for an interest rate cut.
It was an outwardly cautious tone adopted by the BOE, which flagged that it still “might need” to cut rates, if global growth doesn’t pick-up, and the UK election result doesn’t lead to a pick-up in confidence, as many expect. The Pound took another spill consequent to the BOE meeting, trading into 1.30 handle this morning.
6. ASX200 set for falls, after yesterday’s dip: Despite last night’s positive lead, the ASX200 is set up for a relatively soft start. The benchmark index ought to shed 30 basis points at the open, backing up a day where the market gave-up another -0.3 per cent.
In what was a case of good news being bad news for stocks, yesterday morning’s better than expected jobs figures erased what were early gains for the ASX200, as traders pared-back bets of an RBA rate cut in February. The Australian Dollar also climbed on the back of that news, to prove itself one of the outperformers in the G10 currency space yesterday.
7. RBA still likely to cut rates early next year: As it relates to yesterday’s jobs numbers: it’s impact extends likely only to the matter of when the RBA cuts next, rather than if they need to again, at all.
And that’s because although the jobs market looks a little more robust than previously thought, with growth meandering along at its current tick, it’s not expected that the unemployment rate will come down sufficiently enough to see wage growth and inflation pick-up. A rate is still being ascribed a little less than a fifty-fifty chance in February, with a full cut baked in by June, and another half-cut priced-in by the end of next year.
8. Market watch:
ASX futures down 28 points or 0.4% to 6744 near 7.40am AEDT
- AUD +0.5% to 68.85 US cents
- On Wall St near 2.30pm: Dow +0.5% S&P 500 +0.4% Nasdaq +0.6%
- In New York: BHP -0.1% Rio +0.2% Atlassian +1.6%
- In Europe: Stoxx 50 flat FTSE +0.4% CAC +0.2% DAX -0.1%
- Spot gold +0.3% to $US1479.81 /oz at 12.54pm New York
- Brent crude +0.5% to $US66.51 a barrel
- US oil +0.6% to $US61.31 a barrel
- Iron ore +0.6% to $US93.77 a tonne
- Dalian iron ore -0.4% to 638.5 yuan
- LME aluminium +1.1% to $US1797 a tonne
- LME copper +0.7% to $US6215 a tonne
- 2-year yield: US 1.62% Australia 0.84%
- 5-year yield: US 1.72% Australia 0.88%
- 10-year yield: US 1.91% Australia 1.27% Germany -0.24%
- 10-year US/Australia yield gap near 6.40am AEDT: 64 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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