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The Dow Jones gained 0.2 per cent, the S&P rose 0.4 per cent, and the NASDAQ recovered 0.6 per cent. There have been several stories in financial markets driving activity, with some broad themes coming to the fore as being significant across different markets and asset classes. The lead set by US indices may be one of the larger ones, as investors churn through earnings reports for the reporting season. Goldman Sachs reported last night, showing robust figures, as did Johnson & Johnson, which broadly exceeded analyst estimates, and reignited some of the corporate earnings bullishness that characterized the lead up to reporting season.
The NASDAQ has been dominating North American headlines, after falling half a per cent on the back of some disappointing results released by Netflix on Tuesday – namely, underwhelming subscriber data out of that company. The news put an initial dampener on global tech stocks, but true to their upward momentum, managed a nice recovery overnight, to clock another remarkable all-time high. There is always an edginess around the tech stocks as it relates to their performance, given the reliance on evaluating the booming sector’s performance on (somewhat) atypical metrics. However, the rebound in the Nasdaq overnight reaffirmed in trader’s minds that there is fundamental strength in tech, as investors now await upcoming an earnings report from Microsoft.
Fundamental economic news overnight was occupied primarily by an address delivered by US Fed Chair Jerome Powell to the US Senate Banking Committee. It has been described as a measured speech by Chairperson Powell by pundits, but one that was keen to talk up the strength of the US economy, along with the need to gradually increase interest rates to maintain inflation at the central bank’s target. The USD was the big beneficiary of Powell’s discreet but clear hawkishness, with US Dollar Index climbing just shy of half a per cent to trade at time of writing around 94.50.
Gold has suffered most from the greenback’s assertiveness, breaking support at $US1240 and holding onto new support around 1227. The yellow metal could be poised for a pick-up throughout the day, showing signs presently of being oversold. However, keep an eye for a break below 1220 over the next 48 hours: such a move would represent a break through the bottom of a trend channel – a potentially very bearish move.
The less eye-catching but certainly more influential story has been the vast sell-off in oil prices. The black-stuff tumbled to start the week, as voices grow louder that US President Trump may be affecting some influence on Saudi Arabia to boost supply. While news is still to crystallize around this price action, it appears that a reversal of a long-term trend has now taken place, with trend line support seemingly cleared. The $US70 handle on Brent Crude is now in play as the bears take hold of the oil price, who await a strong break through $US72 first before really digging in. Global materials and energy stocks have been sold down heavily, creating inertia for the FTSE 100 (in particular) – look to the release of Crude Oil Inventories tonight to play into this theme and create potential price volatility.
The sell down in the energy and materials space weighed-upon the ASX200, which closed 0.6 per cent lower at 6203. It was somewhat of a one-way journey for the ASX yesterday, falling below support around 6240 at the open and progressively sliding throughout the day. A level of determination was shown by the financial sector and consumer stocks in early trade, thanks to a strong lead from Wall Street banks the night prior for the former, and a follow through from yesterday’s trade for the latter. In the end, a tired Australian share-market gave up the fight, allowing itself to fall below another support level around 6220/25. It seems now that the ASX’s 3-month upward trend could be in jeopardy, as trend line support – currently at about 6197 – creeps ever closer. Although a break of this trend would be a mild disappointment, as it presently stands, such an occurrence points more to a consolidation rather than reversal.
In local news yesterday, special interest was given to the release of the RBA’s Monetary Policy Minutes for the bank’s July meeting. A neutral tone was expected from the outset, consistent with the RBA’s recent stance that the economy is strong, but requires accommodative policy to achieve its employment and inflation targets. The RBA started its statement with a warm appraisal of recent GDP data, seemingly using it as a vindication of the bank’s policy stance. The interesting discussion was around household debt levels, which noted Australia’s exceptionally high private debt load in relation to the rest of the global economy. The RBA closed its minutes expounding that the bank’s bias is “there is no case for a near term adjustment to monetary policy”, replacing it’s hitherto positioning that “the next move in interest rates will likely be higher”.
The currency market has also been one to watch, particularly as it applies to Asian currencies. From a global trader’s point of view, broad-based activity in the Yen proved the most remarkable mover, with USD/JPY holding its line well above the 1.1200 handle, to make its way gradually toward 113.00. The cause for the fall in the Yen can be attributed to a fall in risk sentiment – the VIX, as an imperfect but relevant indicator, has fallen itself to over one-month lows – courtesy of some welcomed silence about the US-Sino Trade War. The weaker Yen has proven to be of a substantial benefit to the Nikkei, which has recovered from its recent lacklustre trading to eye-off once more the 23,000-mark. As has been implied, risk sentiment will be the main driver behind trade within the Nikkei: in the absence of dire news, look for a choppy push higher in Japanese shares.