Deal done: To be (re)named USMCA – the US-Mexico-Canada-Agreement, a clear declaration of the Trumpian neo-Nationalist, “America First” agenda – the trade agreement reconfigures the North American trade consensus, with a skew towards US economic interests. It was apparently the Canadian’s who finally caved in to political and economic pressure on the trade pact, backing down on dairy tariffs and restrictions on US-automotive imports, judging that a deal with the White House was better than no-deal with the White House. Without stripping-back the surface to dig around the details, markets responded favourably to the news – a total sentiment play – with the prevailing view being that this sets the foundations and framework for new deals with the US’s other current trade adversaries.
Relief-rallies: Because of this view, reactions to the news were asymmetrical – not leading to a broad-based lift in risk appetite, but a relief rally in markets within geographies in the past targeted by US President Trump’s protectionist ire. The big uplift was in Japanese markets during the Asian session, owing mostly to the fact it was one of the few markets open yesterday in the region: the Nikkei jumped to 27-year highs, to float about the 24,300-, a level futures markets are indicating will be exceeded once more today. The embattled DAX lifted during the European session to ram solid resistance against that index’s downward trend line, while the industrial-laden Dow Jones led US indices higher, to trade at the day’s highs only 30 points away from fresh record levels.
Risk-currencies: Proving that it wasn’t a sweeping relief rally on financial markets overnight, certain risk assets and global growth proxies behaved apathetically to the USMCA announcement. Our own Aussie Dollar was one, barely blinking as the news hit the wires, spending the day’s trading in a tight band between 0.7200 and 0.7225. The price-action on the USD/CNH provided the best insight into market perceptions regarding how this will impact the US-China trade war, floating further towards the 6.90, conveying that friendliness between North American allies won’t translate to a reduction of animus between the US and China. Naturally, it was the USD and CAD that experienced the solid bidding for the day, with the greenback appreciating against most G10 currencies, the CAD being the obvious exception to this, which rallied 0.9 per cent to dive back into the 1.27 handle.
ASX: The narrow-effects of overnight’s relief rally isn’t expected to manifest a great-deal in the ASX 200 today. SPI futures are pointing to an 8-point advance at the open this morning, backing-on from a day in which the benchmark Aussie index stripped just shy of 0.6 per cent. The index found its comfort zone, right within its recent trend channel and just below its 20-day and 100-day EMAs. Volumes were light because of the public holidays in China, Hong Kong and parts of Australia, but not absurdly so. Sellers were drawn into the market in haste, primarily driven by fear about likely weakness in the market’s besieged financial sector. The dynamic dragged the rest of the market lower for the day, keeping the breadth of gaining stocks to below 30 per cent.
Banks: The ASX200 will struggle to reclaim fresh decade long highs with the banks facing the sell-off that they are. While not performing tremendously well by many measures throughout the year, it's been with the support of rallies in the financial sector that has provided the ASX the basis to form concerted runs higher. Yesterday's sell-off of around 1.50 per cent across the sector portends a challenging final calendar-quarter for the banks and therefore the Australian share market, as investors approach the belief that the policy outcomes of the Financial Services Royal Commission will result in profit-crimping regulatory changes. It's a phenomenon that many-a punter will feel appropriate and necessary, but the likely crack down on the banks will likely hurt shareholders, especially while the exact policy recommendations remain unclear.
RBA today: The day's trade today will be highlighted by the month's RBA monetary policy meeting, out of which the central bank is unanimously tipped to keep rates on hold. The accompanying statement is where the interest will lie, with the focus once more on the outlook for Australian households, particularly considering the release of yesterday's CoreLogic housing data, which revealed Australian property prices continued to fall last month. Rates markets nor the currency are likely to shift much on the news coming out of Martin Place at 2.30PM, but a degree of curiosity (if nothing else) will be directed to the assessment of wage growth, inflation and consumption, particularly ahead of Thursday's domestic retail sales data print.
Other news: Summating the stories rotating at the periphery of financial markets in the last 24 hours. PMI figures threw-up mixed results overnight: UK figures demonstrated above forecast numbers, while European figures were generally at expectation and US print was slightly below. The data provided little insight into the fundamental effects of the trade-war on the supply side, and traders promptly moved on. European bond markets are still a point of concern, selling-off amid fears of Italy’s deteriorating fiscal position and whether that region is equipped to deal with the ECB’s Quantitative Tightening program. The EUR/USD is out of vogue subsequently, plummeting now into the 1.15 handle, after touching highs above 1.18 just last week.