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Market sentiment improves, as global politics drives the macro-narrative

Market sentiment rebounded marginally last night, driving a pop in risk-assets.

Source: Bloomberg

Another pop in risk assets

Market sentiment rebounded marginally last night, driving a pop in risk-assets. There was little substantial information to spark the change. A few market-friendly political breakthroughs. Some positive global Services PMI data. All risk-friendly news, but nothing too great to change the bigger-picture view, yet. Volatility is still relatively high, so the overnight advances in and of themselves were probably slightly exaggerated. Activity was low, suggesting conviction is wanting. Nevertheless, stocks moved higher as safe-haven bond yields dipped. Oil edged-up too, but gold lifted on a weaker USD. That’s helped the AUD higher. And SPI Futures are suggesting a 15-point jump for the ASX 200 this morning.

Stocks are range trading, searching for a clearer outlook

For global stock markets at-the-moment, the best word to describe the investors’ general psychology might be ambivalence. As the global benchmark, the S&P 500 remains stuck in sideways trading, between roughly 2820 and 2945. On the one hand, trade-war uncertainty is stopping any excessive risk taking, as markets participants remain nervous about the global economic outlook. On the other, there is still the “buy everything” impulse within the market, engendered by the prospect of major cheap-money injections into the global economy by central bankers. It’s manifested in an edgy, volatile, but range-trading stock market, as clear cues about the future of the global economy is awaited.

Hong Kong stock markets spike

The Hang Seng 50 was one of the major movers yesterday. It spiked yesterday afternoon, on news that besieged Hong Kong CEO, Carrie Lam, would be officially withdrawing the controversial extradition bills that sparked the disruptive and chaotic protests in the city in the past 3 months. The protests have brought the Hong Kong economy to a standstill in recent months, raising the risk of a major economic slowdown, if not recession, in the near future. Whether this belated move by CEO Lam will placate protesters becomes the question now. If it doesn't, the Hang Seng could give-up it's gains just as rapidly as they were acquired.

Another delay to Brexit looking likelier

Brexit was the other major political story unfolding overnight. The UK PM Boris Johnson lost another key vote last night, on a bill that ensures Brexit’s delay until the end of January 2020, should no-deal arise between Europe and the UK before the middle of next month. In response, PM Johnson has stated he’ll push for a UK General Election. His first attempt this morning has failed, but it doesn’t seem that this will be the last of it. The Pound-Sterling is loving the news of a potential last-second save before the Brexit-buzzer blows, all-in-all. It’s trading into the 1.22 handle this morning.

Australian GDP comes in as expected, still disappointing

Australian GDP data headlined the local data docket yesterday. The numbers proved something of a non-event for financial markets, coming-in bang-on expectations, and generating relatively little market volatility, as-a-result. The Aussie Dollar did pop a little, however its gain post the release was a marginal 0.2%. Despite this, the narrative was still dour, nevertheless. At 1.4%, annualized growth for the Australian economy in the June quarter was the weakest it’s been since the depths of the Global Financial Crisis. The Australian economy is undoubtedly sluggish, and looks increasingly vulnerable, especially given the weakening global economic outlook.

Government and exports keeping growth together

The details within the GDP print was rather illustrative, too. Growth last quarter was held together, once again, by major government spending – primarily on disability services like the NDIS. Exports contributed strongly to growth as well, however that phenomenon is likely to be transient, given the recent rise and fall in iron ore prices. Dwelling investment was the largest drag on growth. But it was perhaps private consumption last quarter that was the greatest red flag. It weakened last quarter; and the savings ratio fell, showing that consumption is being sustained not by income growth, but by digging into savings.

RBA likely to retain “wait-and-see” bias

Do the GDP numbers “shift the dial” for the RBA? According to market pricing, probably not – yet. Interest rate markets are implying that an interest rate cut from the RBA next month has fallen in the past two-days, to about a ¬fifty-fifty proposition. The view appears to be, after the RBA’s much less dovish tone struck at its monthly meeting on Tuesday, that the central bank will be looking to keep its “powder dry”. That is: the RBA is holding off for as long as it can in cutting interest rates, so that it has some power to support the economy if this slowdown becomes materially worse.

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