CFDs are leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your deposits, so please consider our Risk Disclosure Notice and ensure that you fully understand the risks involved. CFDs are leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your deposits, so please consider our Risk Disclosure Notice and ensure that you fully understand the risks involved.

Trade-war noise drowned out by weak European PMI data

Today is a little lighter on news, with local attention to be turned largely to a speech from RBA Governor Philip Lowe.

Week starts mixed, as fears linger about global economy

It was a mixed day for global markets, yesterday. Cautiousness reigned in Asia, after Chinese officials quashed rumours of another fall-out between US and Chinese negotiators, but South Korean trade-data re-inflamed fears that the trade-war is having a bigger impact on the global economy that previously expected. Those concerns were compounded by a significant miss in Europe’s latest PMI data, which increases the chances of a European recession. The US PMI data beat expectations however, soothing some of those fears. Today is a little lighter on news, with local attention to be turned largely to a speech from RBA Governor Philip Lowe.

Risk-off action in market pricing

The interplay of those broad stories led to what was a notionally “risk-off” day, in the end, for global markets. The ASX 200 closed the day higher because of the positive trade-war headlines. But European stocks, along with the Euro, were hammered by the weak PMI data. US stocks took the good-with-the-bad, and closed practically flat. Bond yields fell, particularly those of European sovereigns, as market participants added to bets that more aggressive stimulus from global central bankers will be required to manage this unfolding economic slowdown. That pushed gold prices higher. The ASX 200 is expected to drop 6 points this morning.

Market sentiment and trade-headlines

The pop higher in early-Monday trade off-the-back-of pretty feeble US-China trade-war news shows markets are headline chasing again. There was little substance behind the initial story, but re-assurances from Chinese bureaucrats that a cancelled visit to US farm-lands last week wasn’t because of a new fall-out between the US and China sent risk assets rallying. Ultimately, these headlines and the subsequent price reaction are of little fundamental import – even if they do provide a few extra opportunities to speculate in the market. It’s all just noise and herd-behaviour, at-the-moment, with the dynamic likely to persist until the US and China actually kick-off negotiations next month.

A canary in the coalmine

There were sobering reminders of economic fundamentals yesterday, to anchor market participants back to reality. One of those stories came-in Asian trade, and apparently knocked-down the region’s equity markets. South Korean export data was released, and showed a -22% contraction in exports in the last 12-months. The China-exposed, and trade-sensitive South Korean economy is considered one of those “canary in the coal mines” for the global economy. The extreme contraction in the country’s exports speaks of the dour state of the global economy – and likely, the crippling consequences the US-China trade war is having on international trade flow.

Europe’s scary PMI numbers

An even starker reminder of the brutal economic realities confronting investors, European PMI data was released, and revealed a shocker set of numbers. European Manufacturing PMI contracted to a 45.6 reading. Even worse, the German Manufacturing PMI figure fell to 41.4 – a post-GFC low. Manufacturing activity at these lows is strongly suggestive of an upcoming recession in parts of Europe. The situation was summed up best by the survey’s Principal Economist, Phil Smith: “All the uncertainty around trade wars, the outlook for the car industry and Brexit are paralysing order books, with September seeing the worst performance from the [manufacturing] sector since the depths of the financial crisis in 2009.”

US economy still stands strong amongst the rest

Europe’s dire PMI data threatened to derail market sentiment to begin the week. But, true to form, it was US economic numbers that managed to salvage hopes that the global economy isn’t hurdling towards an outright recession, yet. US PMI figures beat expectations, adding further weight to the argument that the US economy remains resilient in the face of weakening growth in other parts of the world. On top of this strong data, investors’ nerves were also calmed by speeches delivered a slew of Fed-speakers overnight, all of whom reassured markets that if the economy were to slow-down, the Fed remains on standby by with policy support.

Governor Lowe tipped to flag possible rate cut next week

In what’s an otherwise light week of economic data locally, investor focus turns to a speech from our top central banker today. RBA Governor Lowe will deliver a speech entitled “An Economic Update” this evening, within which he is expected to outline the need for another rate cut next week. Following last week’s disappointing jobs numbers, market participants have increased their bets of an RBA cut in October to an 81% implied probability. A greenlight from Governor Lowe for a cut this evening should boost these odds to effectively 100%, with another cut after that before year-end a chance to be priced-in, somewhat, too.

The information 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 Bank S.A. 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 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. See full non-independent research disclaimer.

Discover how to trade the markets

Learn how indices work – and discover the wide range of markets you can trade CFDs on – with IG Academy's free ’introducing the financial markets’ course.

Put learning into action

Try out what you’ve learned in this index strategy article risk-free in your demo account.

Ready to trade indices?

Put the lessons in this article to use in a live account – upgrading is quick and easy.

  • Get fixed spreads from 1 point on the FTSE 100, 1.2 on the Germany 40, and 0.4 on the US 500
  • Protect your capital with risk management tools
  • Trade more 24-hour markets than any other provider

Inspired to trade?

Put your new knowledge into practice. Log in to your account now.

Live prices on most popular markets

  • Forex
  • Shares
  • Indices

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.