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Wall Street’s Monday pain doesn’t translate to panic: The inordinately-active opening session from the US defied the convention of market’s drained due to global holidays keeping to strict holding patterns until there is enough depth to support conviction. While not all global-sweeping sentiment moves originate during the New York session, the majority do. Therefore, it was remarkable that indices in Europe and Asia controlled their respective declines to modest close-over-close losses. And, when the US traders were back at the wheel, the restraint inspired a notable rebound to offset some of the previous session’s losses. The S&P 500’s close below the 200-day moving average now looks to be a purely technical development while the Dow’s hold above its own long-term average looks more prophetic. That said, we are only one liquid day into the new quarter. Investors should be careful about settling on their convictions for the next three months and beyond so early.
Trade Wars aren’t cooling off just because we are in the technical stage: The headlines related to ‘trade wars’ building across the globe seem to have been supplanted with updates as inane as company’s April Fool’s jokes. However, make no mistake: the rise of protectionism represents one of the most widespread threats to global growth and capital rotation with which we are currently faced. This past session, the Chinese Ambassador to the US warned that the country will respond to each action its primary trade partner takes with the same degree of ‘intensity’. So far, China has replied with tariffs to the tune of A$3.9 billion against the US; but that is in direct response to the steel and aluminium actions President Trump signed in an executive memorandum over a month ago. A concern will be revived when the US implements its proposed $50 billion (A$65 billion) tariffs in response to alleged intellectual property theft and China responds in kind. Investors in Australia and globally should be mindful of the collateral damage that will be done – and there will be plenty of it in such an overextended speculative environment.
Where is US President Trump fixing his sights – and tweets – next?: After US President Trump lit the fuse on the now ballooning trade wars, he has seemingly taken up a campaign against tech giant Amazon. The company’s shares have tumbled over the past week as the President has tweeted on what he believes are unfair business practices that have led the behemoth to rise rapidly to one of the largest companies in the world in relatively short time. His arguments don’t seem to be particularly well fleshed out and his threatens, vague; but given the options, he found on global trade, there is certainly enough to be concerned about by investors. Rather than focus on the specific target du jour, market participants should be concerned that this particularly important global leader is undermining areas of the financial system that the market has grown complacent but very much relies on to keep markets so buoyant. So, what will Trump tweet about next?
Wednesday US data to set tone for Friday’s jobs report: A slew of releases out of the United States on Wednesday will help shape expectations for March US Nonfarm Payrolls report due at the end of the week. The March US ADP Employment Change release is due to show the world’s largest economy added +205K jobs, a pace that would easily keep the US unemployment rate near 17-year lows. According to the Atlanta Fed’s Jobs Calculator, the US needs to add +106.9K jobs per month in order to keep the unemployment rate at its current level of 4.1%. Later in the day, the March US ISM Non-Manufacturing/Services Index, which covers roughly two-thirds of economic activity in the United States, is due in at 59.0 from 59.5 – a slight decline but still a robust pace of expansion.
AUD/USD slides Monday but rebounds on Tuesday after RBA rate decision: While the Reserve Bank of Australia held rates unchanged at 1.50% for the twentieth consecutive month, Governor Philip Lowe raised concerns that tighter financial conditions out of the United States (the 3M Libor-OIS spread) and sharpened rhetoric over trade by US President Donald Trump could have negative ramifications on borrowers in Australia. But it’s not just trade rhetoric driving up market volatility and tightening financial conditions: a steady march higher in the Fed funds rate coupled with a higher rate of US Treasury issuance have been the prime factors. A further tightening in US financial conditions could spill over to hit Australian households, which have been grappling with record-high debt and muddling wage growth.
Commodities: Similar to the reversal in US equities between Monday and Tuesday, commodities would experience the same change in bearing as speculators trimmed the opening session’s drive. The energy sector was green across the board Tuesday with natural gas, heating and gasoil all up. The most headline-friendly performance was registered by US crude oil where the bounce was rather tepid. The market was unable to retake $64 which was the previous week’s range floor. In metals, the field was red (with the exception of copper) with the haven-appeal of gold retracing a 1.2 percent gain Monday with an approximate 0.8 percent drop the subsequent session. All of this fits general ranges, which reflects well on the lack of conviction we currently register heading into the new quarter.
S&P/ASX 200 starts new quarter by falling again, but only slightly: Trade tensions between China and the US continued to fester as trading in Q2’18 got underway, with shares on Wall Street falling sharply on Monday and holding flat on Tuesday in choppy trading. Shares on the benchmark Australian index followed their Wall Street peers lower initially but rebounded after a takeover offer emerged for gas company Santos, which sent the company’s shares higher by +16.2%. Elsewhere, shares in BHP Billiton and Rio Tinto gained by +1.8% and +2.1% respectively, with the S&P/ASX closed lower by a mere -0.13%at 5751.90.
Market Data:
SPI futures moved -7.44 or -0.13% to 5751.92.
AUD/USD moved 0.0018 or 0.23% to 0.7681.
On Wallstreet: Dow Jones 0.5%, S&P 500 0.43%, Nasdaq 0.08%.
In New York: BHP 0.69%, Rio -0.55%.
In Europe: Stoxx 50 -0.43%, FTSE 100 -0.37%, CAC 40 -0.29%, DAX 30 -0.78%.
Spot Gold moved -0.64% to US$1332.65 an ounce.
Brent Crude moved 0.49% to US$67.97 a barrel.
US Crude Oil moved 0.52% to US$63.34 a barrel.
Iron Ore moved -1.79% to CNY439 a tonne.
LME Allumnium moved -1.11% to US$2004.5 a tonne.
LME Copper moved 0.74% to US$6714 a tonne.
10-Year Bond Yield: US 2.78%, Germany 0.5%, Australia 2.61%.
Written by John Kicklighter and Christopher Vecchio, Market Strategists, DailyFX
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