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Despite a jam-packed week last week, there didn’t appear to be one story moving to the fore as the major driver of activity. Perhaps it was purposely being ignored, but the intensifying trade war — and the numerous developments to this story in the last several days — didn’t seem to be affecting trade. Commodities markets on balance witnessed active buying, although copper prices were still under pressure; while global equity markets put in a reasonable day, with the major European indices generally keeping flat, and the US indices edging higher.
Wall Street: Wall Street keeps steaming ahead, busting through every obstacle planted in front of it. Last night saw the Nasdaq take its turn to lead the charge, supported by a bounce in the price of Facebook shares, to add 0.6 per cent for the session. Strong results from Berkshire Hathaway also played its part in the boost to positive sentiment, helping the S&P500 add 0.5 per cent; while the Dow Jones also chipped in, gaining around 0.2 per cent for the day. It appears that the strong earnings season has certainly been enough to support US shares through the higher risk environment, with the point of curiosity becoming how long this can last. The S&P 500 sits a slim 25 points away from returning to the all-time highs achieved back at the beginning of this year: look for a climb towards this milestone as an indicator of market bullishness.
ASX: SPI futures are indicating a modestly higher open for Aussie shares this morning, backing up a day in which the market added 0.6 per cent to close at 6273. The sideways trading continued, as the ASX 200 kept to its high wire balancing act, trading just above trend line support. The local market hasn’t seriously threatened to renew its June and July rally to start this month, justifiably constrained by pressure on commodity prices and a return of bearish sentiment towards bank stocks. Activity around the edges of the market is positive, and at this stage, there aren’t any indications that won’t persist. A period of consolidation could be the likeliest scenario given the mixed circumstances on global markets, a dynamic that would possibly be initiated if the ASX finally slips below trend line support.
China: Chinese markets are still flashing warning signs, although the emergency seemed under control yesterday. The speculation around the Yuan yesterday took a small twist after the PBOC intervened to stabilise the Chines currency, amidst concerns that a continued tumble would spark financial instability in Chinese markets. Chinese stocks were the lowlight in markets yesterday, experiencing another thumping: the benchmark Shanghai Composite stripped 1.3 per cent, opening the possibility of intervention from Chinese officials in that market. There is no end in sight for the volatility that has plagued Chinese markets, with a big question becoming: “how low can we go?”
USD: The US Dollar is demonstrating its strength currently, as the US Dollar Index resumes its dance with the 95-handle. The rally in the greenback comes despite a dip in US bond yields last night, primarily due to the softer than tipped Non-Farm Payroll release on Friday. Irrespective, the significant yield advantage the US Dollar is afforded remains very supportive of a stronger greenback, particularly as “no-deal” Brexit concerns spur a sell-off in the GBP and EUR. The EUR/USD will be the one to watch while these circumstances prevail, as that pair flirts with the very significant support level of 1.1510. If that breakthrough is achieved and maintained, expect fundamental shifts across currency markets consequently.
Gold: Gold prices are also worth paying attention to in the coming days and weeks, considering the precipitous fall it has experienced at the hands of the strengthening US Dollar. The price of gold at the time of writing is for all intents and purposes $US1207 – a level that coincides with a horizontal support line and the bottom of a downward trend channel. The RSI is indicating an oversold reading for the yellow metal but has done for several weeks, meaning a trend reversal is unlikely to be forthcoming. If $US1207 breaks, the next levels of interest are $US1195, then $US1180, before free-air opens to the downside all the way to $US1122.
RBA: The RBA headlines the calendar today, with the central bank’s monetary policy announcement scheduled for 2.30PM this afternoon. No move in interest rates will be forthcoming from the RBA, who have all but confirmed that interest rates will need to be maintained at their historic low of 1.5 per cent long into the future. It may sound cynical, but the mood amongst market participants even towards the RBA’s statement is ostensibly one of indifference: the central bank keeps extending its praise towards the Australian economy while downplaying the various risks to Australian economic health. Perhaps the most interesting outcome out of today’s meeting will be assessing what interest markets take in this event at all: a move in either direction within the AUD/USD’s trading range could be the barometer for this.