Markets ended a mixed week on a positive note

Global stock indices generally ended last week lower, despite registering modest gains on Friday.

Stocks pull-back last week on dose of reality

Trade negotiations remain the central concern, with US President Donald Trump assuring on Friday a phase-one deal is “very close”. Fundamentally speaking, Friday’s trade was all about international PMI data, and the results were overall solid. However, the UK’s set of PMI numbers proved Brexit uncertainty still ails the British economy. In policy news, Christine Lagarde delivered one of her first speeches as ECB President, and called for greater hope – and more government stimulus. The ASX 200 is expected to open 12 points higher today, ahead of what’s a relatively light data week.

A more “cautious optimism” towards trade-war

Seemingly, optimism had begun to transform into complacency in global markets, and last week’s trade proved a small dose of reality. Traders were met with the cold hard facts that perhaps the US and China aren’t quite so-close to a trade deal as previously thought. It’s still a headline-to-headline proposition for markets right now, with US President Donald Trump’s assertion on Friday night that a deal between his country and the Chinese is “very close” supporting a slim rally in the S&P 500. But traders are clearly tempering their hopes for a deal this year. The VIX edged higher for the week, and the put/call ratio balanced out.

Global PMI’s generally surprise to the upside

The more essential issue for traders on Friday was a raft of PMI data released across the globe. And all-in-all, the combined result built-upon the view that business activity in the global economy is improving. While clearly not out of the woods, Japanese, European and US manufacturing PMI data exceeded economist forecasts, sparking hope that the worst of the recent slowdown in the world’s economy has bottomed. It wasn’t all bright news, it must be said. Services PMI numbers were, on balance, a little weak, suggesting that 6-12 months of weak manufacturing activity is now demonstrating its effects on the global services sector.

UK PMI the weakest of the bunch

There was something of an outlier to the positive PMI story on Friday. And that was the UK’s version of the data. The Pound took a little spill, after it was revealed that both services and manufacturing PMI contracted by more than forecast last month. Another little reality seemed to confront traders as-a-result of the poor data. For all the hope engendered by the prospect of a Conservative Party victory in next month’s election, and therefore a “smooth-Brexit”, the uncertainty engendered by years of political gridlock in the UK is still stifling economic activity. The UK growth is probably a little on the soft side, calling for eventual BOE stimulus.

ECB President Lagarde outlines her vision

Most of the attention was directed towards Europe’s economy on Friday, and perhaps the event eliciting greatest curiosity was ECB President Christine Lagarde’s speech. Only really at the very start of her tenure, markets are keen to ascertain her vision for the ECB, and the role it plays in European economic policy. In a way, reciting from the Handbook for Central Bank Speak (v. 2019), President Lagarde talked-up the opportunities for economic growth in the future, stated her willingness to throw full policy support behind the European economy, and expressed her desire for greater fiscal stimulus from governments within the Eurozone.

ASX to open slightly higher, still weighed by banks

Given the tepid lead handed to it, the ASX200 is expected to open a solid, but rather modest, 12 points higher this morning, according to SPI Futures. It backs up was a broad-based, albeit low-activity rally, for the benchmark index on Friday. The day’s trade was practically all about traders putting risk-on the table, after the day prior’s false alarm regarding (what appeared like) another deterioration in US-China relations. The only laggard on the market proved the financial sector, which remains a drag on the market, as investors continue to digest Westpac’s Anti-Money Laundering breaches, and what that may imply for the broader banking sector.

The week ahead to be about politics, RBA next week

The week ahead is a little light-on, data-wise. It often is in the final week of the month. Geopolitical risks will be the biggest news in the market, with the US-China trade-war the top priority, but Brexit and the Hong Kong protests of considerable import. Locally, the foundations for next week’s RBA meeting will be set, as traders welcome a speech delivered by RBA Governor Philip Lowe, as well as a whole bunch of GDP “partials”. Choppiness in trading conditions could emerge too, as liquidity quite likely thins-out, as it often does, ahead of the US Thanksgiving holiday on Thursday.


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