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ASX: It comes as no surprise, really, with the lion's share of activity centring around the embattled financial sector. Bank stocks underpinned the rally on the ASX on Friday, led by CBAin signs that the market believed the sector's recent trend lower was overdone. It may be a case of jumping the gun for traders on that one, as sentiment appears sour once more following the weekend's release of the Financial Services Royal Commission interim report. The materials and energy sector did its bit on Friday to carry the ASX higher, courtesy of a broad-based, though modest, uptick in commodity prices; while the health care sector continued to erode its market leading YTD gains, led by a near 2 per cent fall in the CSL shares, creating drag on the overall index.
ASX price action: The price action on the ASX 200 was much livelier on Friday as compared to previous days last week, perhaps a sign of increased bullishness following days of anxiety leading into the Fed. An overarching theme is lacking for the ASX now, leading to a mixed sentiment across different sections of the market. Volume was high during Friday's session, especially as the index toyed with the 6230-mark, an important level of support/resistance in recent months. Considerable profit taking emerged at that level, pushing the market well in line with its recent (more-or-less sideways) trend. The pattern appears set to continue today, in the absence of a fundamental impetus or a strong external lead.
China update: The strong possibility of thin liquidity may hinder the market today, and perhaps the rest of the week, thanks to the week-long Golden Week public holiday in China. The relationship has diminished somewhat of late, but Australian markets have taken the lead of its Chinese counterparts in recent months, as fears around China's economic activity feed through to Australia. Despite not being out of the woods yet, signs are looking more promising in Chinese equity indices now, which have managed to stick fat to key technical support levels in the past week. The interesting story for those invested in Chinese assets this week will be how the USD/CNH fares with Chinese traders out of action, with the Yuan looking vulnerable to the downside towards the very important level of 6.90, following the release of weaker Caixin PMI figures over the weekend.
PMI data: Speaking of PMI data, one of the significant themes this week will be the release of a spate of PMI figures across several geographies. As a great leading indicator of economic strength, particularly considering the escalating trade war, PMI numbers have softened in recent months, presumably because of tighter trade conditions. The poor Chinese PMI print sets up the release of corresponding figures in Japan, the UK, and the US today, with traders of the industrial laden Dow Jones, Nikkei 225 and DAX surely paying attention. Given a leitmotif in markets last week was the Fed's optimistic view on global growth into the next 12 months, the data dump of global PMI data provides the first opportunity to test this proposition, and subsequently form a position on this state of markets leading into the final calendar-quarter for the year.
US Indices: Wall Street (for one) will be entering into a curious and frenetic period as the new month rolls around, as traders prepare for what is typically the hottest period for US equity markets. The results for North American equities were lukewarm on Friday, with major US indices holding flat for the day. The so-so performance for US shares throughout last week was still enough to ensure the strongest quarter for US equities in 5 years and place those markets well in touch of all-time highs. The element of the present trade dynamic that may make-or-break the market this quarter is how it weathers upcoming US mid-terms: US shares typically stall in the month leading into such an event, notwithstanding that this round of elections appears a vote on the confidence, support and legitimacy of US President Trump.
Europe and the DAX: European markets look to remain stuck in the middle of several local and international themes. Concerns lingered over the weekend regarding Italian fiscal policy, along with ongoing fears about a no-deal Brexit and the effects the US-China trade war will have on Europe’s fledgling economic recovery. The DAX has demonstrated the sentiment-sapping effects of these confluence of factors, remaining trapped in a downtrend since mid-June, even despite rallies higher in indices with comparable trading behaviour, like the Nikkei. The downward trendline currently at 12,430 will be a formidable barrier for traders, with a solid hold above support at 12,100 required to set the foundations of a swing in momentum and a trend reversal in the near-term.
Oil: A status check of activity in the oil market should be undertaken to start the new week. The price of the black stuff continues to rise, on the back of greater concerns around production and supply on global markets. The US sanctions on Iran seem to be more impactful than first believed, exacerbated by the view that OPEC+ won’t be bullied nor cajoled by US President Trump to fill the gap in supply. The US President reportedly reached out personally to Saudi Arabia’s King Salman on the weekend to discuss the matter, highlighting the risks higher prices will have on global growth and market stability. No firm outcome was reported out of the interaction, as some more bullish commentators grow louder in their calls that no change to the present trade dynamic will see oil fly to $100USD in Brent Crude terms.