Friday’s trade caps off turbulent week

Friday’s trade ended a turbulent week for financial markets, and on balance, amounted to another bearish day for stocks and other risk assets.

Market data Source: Bloomberg

The week that was

Global equity indices racked-up losses, while growth sensitive currencies, commodities and credit-assets traded mixed. The news the punditry is pointing-to in order to explain the lacklustre market sentiment was, first: the announcement by US President Trump’s administration to delay extending licenses to US businesses permitting trade with controversial Chinese mega-company Huawei; and second, released later-on in the day’s trace, news that the US President was open to cancelling upcoming trade-talks between the US and China in September.

Fears linger about trade war and global economy

Those headlines ostensibly compounded concerns about the state of US-Sino relations, and enhanced the probabilities that the trade-war would act as a tightening straight-jacket on global economic growth. Such fears certainly appear rational. UK GDP data was released on Friday night for one, and – although clearly just as much a product of ongoing domestic political-turmoil, as it is any global-phenomenon – showed a surprise contraction in quarterly growth. Investors are almost certainly operating in an environment whereby the flame-of global economic activity is dimming. Hope remains of a central bank engineered turn-around, or at least soft-landing, but judging by Friday’s price action, the odds of that are slimming.

Sentiment isn’t as bearish as what it seems

That doesn’t preclude a turnaround in market fortunes in very short-term, however. And although global equities did put-in quite an uninspiring performance on Friday, things probably looked a little worse than what they were. A few mitigating factors need to be considered right now when assessing market-behaviour. Activity in markets is a little thinner than usual, owing to the August-holiday season in the Northern Hemisphere. As much could be witnessed on Friday, with volumes below average across global stock markets. The VIX did lift, showing sentiment was slightly pricklier, relatively speaking. But the resulting moves to the downside are probably being exaggerated by less bums-on-seats in global trading-floors.

Not quite risk-on, not quite risk-off

This doesn’t dismiss the tumult of earlier on in the week, last week. That was genuinely high-octane selling, driven by a generous dollop of panic. The point is Friday’s action ought not be seen as an extension of that for stock-markets. Again: fundamentals are still eroding, and the outlook is looking bleaker. However, jumping the gun and suggesting the 0.5% to 1.00-plus percent losses sustained by the S&P 500, DAX and DAX was another day of terror-on-the-trade-floors would be very misleading. Case-in-point: global bond yields were generally unchanged in global markets to end the week, suggesting there was no additional drive to safe-haven assets.

Commodities and currencies ended week mixed

Gold was also marginally lower, oil prices climbed as the Saudi’s promised to stabilize the market, copper dipped, while the Japanese Yen and Swiss Franc is powering forward as the trade-war-risk hedges of choice, as China proxy currencies, like the Australian Dollar, look liable to further downside. Because of this mixed behaviour, many are calling Friday’s trade in stocks a day of taking profit from the mid-week rally. That’s a convenient, but perhaps true-enough assessment of the state-of-affairs. Futures markets are pointing to another day today of much the same too, although those prices are failing to discount a weekend’s worth of information.

ASX to start week on the back foot

The ASX 200 ought to open 22 points lower, for one, backing up a day in which our benchmark stock index was one of the few strong performers in global markets on Friday. We caught the tail-winds of a solid lead from Wall Street the night prior, that disproportionately benefited bank stocks, and managed to obscure what was an otherwise neutral day for Australian equities. The highlight of our session was the RBA’s Quarterly Monetary Policy statement, which revealed a downgraded set of domestic growth numbers, and hinted that interest rates will remain low in Australia for what appears to be a number of years yet.

Growth data presents as key theme this week

The week ahead becomes about global economic fundamentals. The UK’s growth-data established the tone quite adequately: market participants are going to be perusing the detail of a series of high-impact data, to reprice for what is beginning to look like are more imminent global economic slow-down. A series of European GDP numbers are released, with the German set of numbers expected by many to show a growth contraction. US Retail Sales numbers are printed, and will be used to gauge how long left this US economic cycle has to run. While at home, punters will be keeping close watch on jobs data Thursday, and wage-growth data on Wednesday.


This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Explore the markets with our free course

Discover the range of markets you can spread bet on - and learn how they work - with IG Academy's online course.

Turn knowledge into success

Practice makes perfect. Take what you’ve learned in this index strategy article, and try it out risk-free in your demo account.

Ready to trade indices?

Put the lessons in this article to use in a live account. Upgrading is quick and simple.

  • Get fixed spreads from 1 point on FTSE 100 and Germany 30
  • Protect your capital with risk management tools
  • Trade more 24-hour markets than any other provider – 26 in total

Inspired to trade?

Put the knowledge you’ve gained from this article into practice. Log in to your account now.

Live prices on most popular markets

  • Forex
  • Shares
  • Indices
Bid
Offer
-
-
-
-
-
-
-
-
-
-
Bid
Offer
Bid
Offer
-
-
China 300
-
-

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

Plan your trading week

Get the week’s market-moving news sent directly to your inbox every Sunday. The Week Ahead gives you a full calendar of upcoming economic events, as well as commentary from our expert analysts on the key markets 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 spread betting and CFDs.

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

Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 74% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.