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It was on balance a negative session for US indices, which were unable to follow the positive lead of European shares, amidst prickliness from investors towards the evolving US-Sino trade war. The angst was piqued by news from both trade war combatants that a Chinese court blocked Micron Technology from selling in China; and that US President Donald Trump would block China Mobile from entering the US on National Security grounds. The developments were a stark reminder that come Friday, the trade war comes into practical effect, with further hostility from both countries expected and likely. Naturally, the news smacked down the day prior’s recovery in tech shares, forcing the S&P and Dow -0.5% lower for the day.
Trade in Asian markets initially looked to be following a familiar narrative in early trade yesterday: Chinese, Hong Kong and Japanese equities were falling amidst trade war fears, while the ASX200 had bucked the trend to push higher. The tide quickly turned after midday trade, however, with the Shanghai Composite spiking and erasing its early losses, to close the day around 0.4% higher. The Hang Seng still took some punishment, closing 1.4% lower, but that was largely due to some catch-up selling following Monday’s bank holiday in Hong Kong. In Japanese shares, the Nikkei was unable to post a win for the day, although it did manage to mitigate its own losses, to only drop -0.1% for the day.
The question has come up again given yesterday’s activity: are Chinese policymakers intervening in financial markets? The spike in the Shanghai Composite Index did seem a touch dubious, given the general panic that was sweeping markets in morning trade. However, the Yuan was stabilised overnight by comments from the Governor of the PBOC that the central bank would not look to intervene in currency markets. The news came as a relief to traders, who were clearly nervous about an arbitrary intervention by policymakers into the market. In saying this, though, recall that commentary often took a similar shape in 2015, when Chinese authorities forcefully entered Chinese financial markets to settle them at that time.
Although the ASX200 powered along yesterday, SPI futures are currently pointing to a soft open today. A streak of optimism encouraged traders of Australian shares yesterday, who appeared confident to take a punt on some of the more defensive sectors of the local share-market: telecommunications shares rallied 2 per cent collectively, recovering some of that sector’s recent losses, and utilities were up 1.3% for the day. It was only the materials sector that failed to post a win for the session, closing the day down -1.5%, as the global decline in commodities prices weighed on mining stocks. Global themes look as though they will dictate trade today, as local traders prepare for Trade Balance and Retail Sales data this morning.
As is normally the case for the Australian economy, the first Tuesday of the month was a significant one in terms of economic data. The first event of note was the morning’s release of Building Approvals data for the month of May, which revealed that approvals for new construction contracted -3.2% that month, against forecasts of a slender 0.1% expansion. Reactions to the news on financial markets were understandably mooted, drowned out instead by commentary surrounding broader macro themes. However, the figures are worth taking account of, considering they demonstrate further evidence that the infrastructure boom that has powered the Australian economy in recent times is slowing down.
The RBA met yesterday afternoon, in what amounted to the week’s biggest local economic event. To no one’s surprise, interest rates were kept on hold for the 21st consecutive time at their historic low of 1.50%. The accompanying statement was where interest lay, as traders perused the release for any semblance of new information.
In effect, there was little too report: slack labour markets are leading to sluggish wage growth, which is holding back inflation and therefore the prospects of an imminent rate hike; households are struggling because of the slow wage growth, which is being exacerbated by high levels of private debt and falling house prices; consumption is low because of both variables, which is a risk to overall growth.
Despite this familiar story, a positive to come out of the statement was a recognition by the RBA that recent GDP data supports its call that the economy should be growing at around 3%, and this would likely support the central bank reach its objectives.
Australian economic data will hog some of the headlines, at least in the Australian session, as investors turn attention to this morning’s Trade Balance and Retail Sales data. The reaction in share markets will likely be limited, although some activity in consumer stocks or export-heavy sectors could shift based on the news. The likeliest centre of activity based on the data is the Australian Dollar, which pushed 0.5% higher (at time of writing) over the last 24 hours after the RBA omitted commentary about the currency from its monetary policy statement. The local unit is starting to build a rather formidable trend channel, pointing down to the 0.7300 handle and perhaps beyond, so look for a paring of recent gains if the data is poor.