The sell-off yesterday made it feel like the recent rally in Australian shares were a bit of a fake-out, as traders apparently banked profits on what proved to be a modest bound for the ASX. Across the sectoral map, it was only a climb in material stocks that held the broader index together, rallying in line with the recovery in global commodities prices over the last 24 hours. The day ahead looks much more promising in terms of positive price action for the local market; but perhaps worryingly, it appears the ASX 200 has lost its resilience, trading much more in line with Asian markets and broader macroeconomic themes.
Australian Employment Figures: The Australian session was highlighted by domestic employment data yesterday morning. To the surprise of many, the labour market figures smashed expectations, printing effectively a blemish-free set of figures. The data revealed the Australian economy added 44k jobs last month, against a consensus forecast of 16k, a number strong enough to maintain the unemployment rate at 5.3 per cent despite a tick higher in the participation rate. The AUD/USD rallied on the back of the news, but met firm resistance at the 0.7200 mark, selling of at this level on a handful of attempts. Promisingly, the AUD/JPY managed to leap above the 80.00 handle, indicating greater confidence in the prospects of both Australian and global growth.
Asia: Asian markets are primed for a much more substantial day of trading today. Futures markets are indicating a broadly solid end to the week for Asian equity indices, courtesy of the strong activity on Wall Street overnight and easing concerns around emerging market risks. On balance, trade in Asia was strong yesterday, with share markets pulling themselves off the canvas after 10 successive days of losses. The Nikkei and Hang Seng rallied aggressively as fears of slower global growth eased a little; and Chinese indices managed to end the day in the black, though they did drift lower throughout the day. Valuations are said to be looking quite attractive at current prices for Asian shares, so look for these markets to find possible support from an influx of value investors, particularly if today’s massive Chinese data dump paints a strong picture of the Chinese economy.
Europe: Although the world still hinges in a significant way on what may come about in the Asian region, overnight trade was about European markets. Both the Bank of England and European Central Bank met to decide monetary policy, out of which neither central bank modified policy settings as expected. The BOE’s meeting was overall a non-event, with the board voting unanimously to keep interest rates on hold, as expected. But markets did move somewhat on ECB President Mario Draghi’s commentary, who despite revising down some of the central bank’s economic forecasts, delivered an upbeat assessment on the Eurozone economy. The GBP and EUR both rallied overnight after the news, hitting intraday highs of 1.3127 and 1.1706 respectively.
US economy: The push higher in those currencies, it must be said, was very much supported by a dip in the US Dollar overnight, which sold-off because of a boost in risk appetite coupled with a weaker than expected print of US CPI data. Regarding risk appetite, bullishness amongst investors was galvanized by the outcome of the Central Bank of Turkey’s meeting, out of which that central bank hiked interest rates by more than expected, stabilizing the Turkish Lira consequently. In terms of US CPI, expectations of interest rate hikes moderated somewhat, after US inflation printed at 0.2 per cent, below forecasts of 0.3 per cent, resulting in a small dip in US Treasury Yields at the back end of the bond curve. The dynamic weakened the US Dollar subsequently, opening-up potential falls for the greenback to around 0.93.75 in the short term.
Wall Street: The slightly cooling in rates and bond markets was probably supportive of trade on Wall Street last night. Major US indices snapped back into action during the North American session, led by a rally in US tech stocks, as easing trade war fears introduced a level of enthusiasm for the strong fundamentals in equity markets. The NASDAQ gained 0.75 per cent for the day, while the S&P500 added 0.53 per cent to position itself only 12 points shy of new all-time highs. With one session remaining for equity markets for the week, early indications coming from futures markets are that hitting another record-high for the comprehensive S&P 500 is on the cards. Perhaps the spark will come from tonight’s major economic data release in the form of US Retail Sales data, that will be perused by investors for confirmation that a strong US consumer is underwriting US economic growth.
Next week: Looking towards the week ahead, the economic and corporate calendar looks light. The event risk will come from the RBA’s release of Monetary Policy Minutes on the local front, while the meeting of the Bank of Japan, a spate of UK economic data and a major speech from ECB President Mario Draghi will get international markets working. Of course, the most significant risk this coming week will be the US-China trade war, which will take on greater influence against the backdrop of light economic data. There have been few substantial developments in the trade-war story this week, barring a few whispers about US policy makers extending an olive branch to their Chinese counterparts. The go ahead for the next round of $US200bn worth of tariffs on Chinese goods hasn’t yet been given the go ahead by President Trump, so expect the spectre of this decision to hang over markets and potentially sap sentiment.