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Trader thoughts - the long and short of it

Wall Street has been boosted in late trade, thanks to news flowing from the White House that an agreement has been struck between US President Donald Trump and European Commission President Jean-Claude Juncker to pull-back from a potential trade war.

Source: Bloomberg

The agreement, it has been reported, will result in lower industrial tariffs between both economies, plus an increase in imports into Europe of US liquefied gas and soybeans. The industrial heavy Dow Jones has rallied following the news, after a day in which it traded in line with the negative activity found throughout Europe and Asia earlier in the day. Although it’s too early to tell whether the amicability will stick between the US and Europe, US indices will likely see a boost in activity on the moderately lower risk environment, amidst what is an ongoing and successful corporate reporting season.

SPI Futures are indicating a higher open to today’s trade, following what was a lacklustre day yesterday for Australian investors. It appears the talks in Washington between US President Trump and European Commission President Juncker are being judged as positive for markets, setting up a strong lead for Aussie trade. It may prove the shot-in-the-arm the local share-market needs, after several days of sideways trading. The ASX 200 has spent the better part of the week wading around the mid-6200 handle of the index, without a great deal of impetus for the index to run much higher. An upward trendline of support is closing in on current levels according to technical data, so watch for a moment revelation for traders equivocating about the ASX’s immediate fate.

The day’s trade yesterday for the ASX may well have been described as rather dull. Although reasonable foundations had been set for the local market from Wall Street, local traders for the better part ignored the strong corporate earning story to drift on their own tangents. If it weren’t for the announcement of the considerable stimulus program by the PBOC for the Chinese on Monday, which has spurred a rally in commodity prices and resource sector stocks, the day may have been a lot worse. The banks couldn’t carry their load as concerns around the cost of funding returned to the fore, while yesterday’s CPI print weighed on consumer stocks after it was inferred that retailers are still feeling a squeeze on margins.

Australia’s CPI data disappointed market participants when looked at on balance, undershooting forecasts on a quarter-by-quarter basis. The quarterly print show price growth of 0.4 per cent versus expectations of 0.5%, which took the headline annualized figure to 2.1%. While this looks like a respectable print on the face it, digging through the details shows a less than favourable depiction of the Australian economy: the lion’s share of price growth was in fuel prices, owing to a rally in oil prices recently, coupled with a rise in alcohol and tobacco prices, thanks to increased excises on those products. The sectors of the economy that indicate price growth from fundamental economic strength are lagging still, meaning that the RBA’s neutral interest rate bias is still on hold.

Global traders had quite a close and nervous eye on news from Japan yesterday, as Bank of Japan watchers became increasingly wary of a potential flagging of changes to the central bank’s monetary policy. The concerns – at least for immediate future – were unfounded, as no announcement was made by the BOJ to slow its asset purchasing program designed to keep flat long-term funding rates. The Japanese Yen fell consequent to the news, supporting the Nikkei and sending the US Dollar modestly higher. Interest will shift for Nipponophiles to the BOJ’s monetary policy meeting next Tuesday for more insights into that central bank’s policy plans.

The ECB will meet tonight to discuss its monetary policy settings, in an event that is not expected to yield much valuable new information. Having shocked markets last month with their combination of Quantitative Tightening plans and lower-for-longer interest rate intentions, traders have settled their expectations for monetary policy in the Eurozone in the short-to-medium term. It is difficult to imagine a situation that a spike in volatility will result from this event, particularly in the strengthening EUR/USD. However, some running commentary on the trade tensions between the US and Europe – particularly considering the Trump/Juncker meeting – may be a point of curiosity.

Volatility in oil will be one to watch out for, following another fall in oil inventories in the US overnight. US Goods Trade Balance figures – a data point not normally expected to affect markets – will be kept an eye on for its implications for the ongoing trade-war. Core Durable Goods Orders and weekly Unemployment Claims, also out of the US, will be published tonight too and will be looked upon for further evidence of fundamental strength in the US economy. This will all lay the foundations for tomorrow night’s US GDP print, which is tipped to be one of the best in several releases.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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