Trade-talk doubts and weak data make for a risk-off day

The last 24-hours in financial markets has all been about the trade-war, and global growth. Stock markets traded lower generally, as hopes for a phase-one trade deal between the US and China hang by a thread.

Trade-talks and growth data dominate overnight trade

The last 24-hours in financial markets has all been about the trade-war, and global growth. Stock markets traded lower generally, as hopes for a phase-one trade deal between the US and China hang by a thread. Anti-growth assets generally prospered, after a spate of high-impact economic data, overall, renewed concerns about the strength of the global economy. Australia had its own taste of disappointing economic data too, after local jobs numbers surprised to the downside. That did contribute to a rally in the ASX 200, however, with the index expected to open higher this morning. And in the day ahead: attention shifts to US Retail Sales data tonight.

Traders still holding their breath on trade-talks

Stock indices, especially those on Wall Street, aren’t really showing it yet; however, doubts are building about the prospect of a US-China trade-deal. Again, it would seem that the countries negotiators are hitting a few roadblocks, apparently around the matter of US agricultural purchases, and forced technology transfers. Several headlines in the last day-or-so attest to the challenges, and that’s seen safe-haven assets generally climb. Wall Street stocks are still dancing around all-time highs, with the S&P500 trading practically flat again overnight. But momentum is waning, and there’s the niggling fear that the market has moved too quickly in pricing in a trade-deal.

Is the global economy really recovering?

The trade-war wasn’t the biggest issue yesterday, though. A spate of economic data was released across the globe, and the net-effect of all the news was renewed concern about the strength of the global economy. Chinese data missed expectations considerably, with softness in industrial production and fixed asset investment pointing to constrained investment in China’s economy. Japanese GDP also missed expectations. German GDP data did surprise to the upside, and defied expectations that the German economy entered technical recession last quarter. But the impact of that was, counterintuitively, negative for European equities, as it lowers the chances of German fiscal stimulus.

Growth concerns spark play into safe havens

This combination of growing doubts about trade-talks, along with disappointing economic data, delivered something of an ant-risk feel to trade yesterday. First and foremost, global bond yields retraced considerably: the yield on the benchmark US 10 Year Treasury note fell 6 basis points. Lower global bond yields pushed gold prices 0.5% higher, and off recent lows. The Japanese Yen lead the G10 currency space’s gains, and the Aussie and Kiwi Dollar’s lagged. Oil and copper prices dropped on fresh concerns about global growth, however iron ore prices actually rose, likely on bets that weak Chinese economic will see the country’s policymakers increase economic stimulus.

Local labour market weaker than previously thought

Australian received its own dose of nasty news, too. Australian jobs data was released, and revealed a surprise contraction in jobs growth last month. Forecast to have added around 16k jobs, the economy shed 19k jobs in October. That proved enough to push the unemployment rate up to 5.3%, even despite a drop in the participation rate to 66.0%. The clear signs of increasing slack in the labour market has stoked expectations the RBA will be forced to cut interest rates sooner than previously thought. According to interest rate markets, the next rate cut is more than likely to come in February.

Higher odds of RBA cut bad for AUD, good for ASX

The greater expectations for another RBA cut, as well as a general pessimism regarding the outlook for Australian economic growth, saw Australian Government Bond yields tumble yesterday. Widening interest rate differentials – compounded, too, by the weak data that came out of China – has seen the AUD tumble, falling below the 68-cent level overnight. The fall in bond yields did drive a 0.5% rally in the ASX200, with yield sensitive growth stocks and the defensive sectors underpinning the gains. Once again, the financial sector proved the major laggard, as the prospect of an even lower cash rate inflamed concerns about the banks’ future profitability.

US Retail Sales data punctuates the week’s trade

Attention remains on the trade-war and global growth today. Developments in the former are inherently unpredictable. But as far as what to watch regarding the latter: US Retail Sales data is released tonight, and will be closely examined for signs that the US consumer remains in a strong spot. Despite signs of weakness in business activity, and a mild slow-down in jobs growth this year, US consumption has been the shining light pointed to as evidence that the US economy remains in a strong spot. Confirmation that this remains true ought to ease investors fears, while a miss in tonight’s data will certainly fan them.

IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.

Please see important Research Disclaimer.

European Central Bank meeting

Learn about how the ECB meeting affects interest rates and price stability ahead of the next announcement.

  • How might the next meeting affect the markets?
  • What are the key rate decisions to watch?
  • Why is the Governing Council announcement important for traders?

Live prices on most popular markets

  • Forex
  • Shares
  • Indices
liveprices.javascriptrequired
liveprices.javascriptrequired

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

liveprices.javascriptrequired

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.

The Momentum Report

Get the week’s momentum report sent directly to your inbox every Monday for FREE. The Week Ahead gives you a full calendar of upcoming key events to monitor in the coming week, as well as commentary and insight from our expert analysts on the major indices to watch.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.