IG Markets: Notes on Australian markets today

Kyle Rodda, Market Analyst, Australia

The day's takeaways:

- The markets get moving on a busy day’s trade

- AUD hits post-GFC lows on China rate-cut, jobs data

- Under the surface, jobs numbers weren’t too bad

- ASX jumps on Chinese stimulus, lower AUD and rates

- What are Yen traders trying to tell the market?

The run down:

Markets have really moved today, and there is plenty going on. Key levels are breaking across several asset classes, many of them Aussie relevant, with some curious price-action leaving market participants a little stumped as to what’s going on in the world. Stocks are higher again today. US equities cleared fresh record highs, on further tech-stock strength, and that translated into an, on-balance, a positive day for Asian equities. The biggest event today was the PBOC’s meeting, and its highly anticipated rate cuts. They didn’t disappoint, lower the country’s 1-year prime rate by 10-basis points, and its 5-year prime rate by 10 points. Asian equities initially lifted on the news, but retraced most of the gains as the session wore-on. The decision from the PBOC was overwhelmingly expected, so it may have been a matter of buy the rumour, and sell the fact, on that one.

It certainly got currency markets moving in the one direction though. The offshore Yuan dropped below the 7 handle, and the Aussie Dollar took a spill with it. The AUD is now trading at new post-GFC lows, having registered an intra-day low of 0.6633. Technicals are in part responsible for the move. But there’s a lingering concern that may be the Aussie Dollar is one of those canaries in the coalmine right now. Perhaps the market, via the AUD/USD, is suggesting that the impact of the coronavirus on China’s economic activity is going to be more significant than previously thought. It must be said, it was a double whammy today for the AUD. It was knocked lower by Australia’s jobs numbers this morning, which revealed the local unemployment rate ticked higher to 5.3% – a worse outcome than the 5.2% figure estimated.

Though it was quite an aggressive response to the jobs data from the market, with market participants increasing the odds of a rate cut in April to 25%, and pricing an almost certain move lower from the RBA by August, the data wasn’t as bad as price action might convey. Indeed, the labour market, surely to the chagrin of the RBA, remains slack. Spare capacity remains, and will remain for some time yet. But the primary driver of the lift in the unemployment rate was an unexpected lift in the participation rate, suggesting more Australians are motivated to go out and find a job. On top of that, unlike the previous month, all of the net 13,000 gain in jobs month came in the form of full-time jobs. Though certainly not ideal, that dynamic is something the RBA will likely welcome, and keep it cautiously hopeful.

Irrespective, the market clearly made up its mind that the numbers will push the RBA closer to cutting rates, and the Australian Dollar is down with cash rate futures and government bond yields. Of course, that’s been supportive of the stock market today, which has pushed onto fresh record highs. It nicked the 7197 mark early this afternoon, before duly selling off just below what stands a pretty key psychological level. The ASX200 is trading 0.5 per higher this afternoon, in what’s been a generally broad-based rally. High-growth stocks in the healthcare and IT sectors have been the sole laggards. Of comfort to market bulls, too, is that the index ripped through what was shaping up as being a double-top on the index. Like it, or loathe it, like stocks across the globe currently, the trend is still firmly to the upside for the ASX200.

There has been the baffling case of the Yen in the last 24 hours. It’s recovered some of its losses in Asian trade, but it got slaughtered overnight, at least by its standards, breaking through multi-year resistance to trade at a fresh 10-month lows. It’s an interesting, arguably scary proposition for the market. Traders are ostensibly betting on a Japanese recession. Worryingly, the move has come with a big lift in the USD, and continued downward pressure on US Treasury yields, and a rally in the gold price to 7-year highs. Though the past can’t tell us definitely about the future, and it is certainly too early to infer anything too profound, this is the sort of trading dynamic that emerges when traders bypass the Yen for safety to wait-out a temporary risk, and run straight for the US Dollar as the best, maximum story of value.