S&P 500 closes just shy of record highs ahead of massive week for global markets

Sentiment improving ahead of a busy week

There is a burgeoning bullishness in global financial markets. The latest exchange of platitudes and niceties between the US and China shot the S&P 500 close to record highs. This is coming off the back of an earnings season thus far exceeding expectations. Broader market activity in the financial markets is pointing a “risk-on” attitude amongst traders. That positivity ought to manifest in a 24-point rally out of the gates for the ASX 200 this morning. All’s not entirely well, of course, as hopes for an orderly Brexit fade. This, ahead of a big week, with a loaded economic and corporate calendar, both locally and abroad.

Trade progress drives US equities to record levels

Wall Street equities shot higher on Friday, on news that the US and China were making further progress in trade-talks. US President Donald Trump, following a phone-call between US Treasury Secretary Steven Mnuchin and Chinese Vice Premier Liu He, stated “we’re doing very well with China” and that the Chinese “want to make a deal very badly”. The comments, though merely headlines, indeed, put a fire under US stocks to end the trading week. The S&P500 rallied briefly beyond its record closing level at 3026, to close trade at 3022 – and now looks poised for a potential fresh break-out in coming days.

US earnings season still beating expectations

The rally in Wall Street indices is being built on what’s proven to be a less-bad-than-expected US earnings season. Despite what was a kick to the guts for investors after Amazon.com’s relatively disappointing results on Friday, it’s been an otherwise upbeat US earnings season thus far. The percentage of companies beating estimates hovers roughly around 78%, as it presently stands. And the expected contraction in earnings growth for the 3rd quarter has fallen from above 4% to below 3%. It establishes now what will likely be the biggest week for the reporting period, with the likes of Google, Facebook and Apple reporting.

Risk-on broadly across financial markets

Bullish price action extended beyond just equity markets on Friday. There was a tangible uplift in other risk-assets, and generally speaking, a dip in safe-havens. The VIX dropped to a near-3-month low around the 12 level. US Treasury yields jumped, and the yield curve steepened, dragging global bond yields higher. The USD sustained its bounce off its recent lows, as a rosier view of US economic activity, along with a dip in the Pound and Euro, pushed the Greenback higher. Oil prices, and broader commodity markets, lifted on tentative expectations of a bottoming out of the global economy’s slowdown.

ASX200 set to jump at the open

The solid lead from Wall Street is setting up the ASX 200 for a strong start this morning, building on what was a substantial rally in the index on Friday. The market sits less than 2% away from its own record-highs now. The latest run higher for the ASX200 has been underpinned by a significant out performance from the health care sector, along with modest advances from the industrials and consumer discretionary sector. The heavy hitting materials and financial stocks have lagged behind the rest of the market: a dynamic that’d probably need to reverse to see records fall for the ASX.

Brexit optimism tempered, slightly

Not every story circulating global financial markets was sugar and spice on Friday, it must be said. Confidence about a smooth path to Brexit was hit, after the European Union failed to agree on an acceptable date to extend the Brexit-deadline. Held back mostly by the French, the EU’s inability to ratify a Brexit extension lifts very marginally the odds of the UK crashing out of the bloc this week. The Pound has continued to fade-lower on the impasse, trading into the low 1.28 level. The official Brexit deadline is only 3 days away now, with traders to remain hyper-vigilant towards developments in the EU’s deliberating.

One of the year’s biggest weeks

Brexit will just be one issue in a jam-packed week. The peak of US earnings season is another. The US Fed will meet Thursday morning our time, and will probably cut interest rates again. US GDP data is released, as is all important US ISM Manufacturing data and US Non-Farm Payrolls data. That’s, clearly, just out of the US. Several key Chinese data points come out, and the Bank of Canada and Bank of Japan also meet. Locally, all important CPI data will be printed, which will preface nicely next week’s RBA decision. Local building approvals data will also be published.