Trader’s thoughts – markets search for direction amidst dearth of substantial information
The bulls and bears are circling one another, with neither to take control in a meaningful way this week.
The control of the market:
The bulls and bears are circling one another, with neither to take control in a meaningful way this week. There is a vacillating in sentiment, maybe as each side recognizes that not enough information has emerged this week to tip favour towards one camp or another. Moments like these can be opportunities whereby markets build to a breaking point. It becomes a matter now of waiting for the necessary evidence to buy-in or sell-out. Headlines are determining intra-day moves in presently, as traders jump at shadows any time the theme of “global growth” or “trade war” arises. The impact of such stories appears to be diminishing now: and impatience has developed. Market participants want substance before they commit themselves to their next move.
The imminent catalysts:
It won’t be long before such opportunities arise. US earnings season remains one of them, and overnight earnings beats by the likes of IBM and Procter and Gamble galvanized temporary upside. A slew of PMI figures out of Europe will also be released, before central bank policy comes to the fore too, with the ECB due to meet on Thursday. As can be inferred, the next 24 hours may well centre on Europe, and its apparently ailing economy. Recall, it was the last round of PMI figures released out of Europe that showed a contractionary figure in that measure in several sovereign economies. Coupled with what is assumed to be a dovish ECB President Mario Draghi tonight, and the outlook for global growth may prove up for revision.
Other ongoing geopolitical concerns will dominate, too. Momentum in trade war negotiations has seemingly diminished, adding urgency to those talks. Davos is delivering fodder for intellectual debate about the state of the markets, though little has come yet of market-shaking significance. And Brexit-drama keeps is keeping its hold of a big part of trader’s attention. Relating to Brexit, the GBP continues to appreciate, for reasons easy to rationalize but hard to truly understand. The Cable maintained its short-term rally overnight, breaking through 1.30, on what seems to be a market pricing in the real prospect of a delay of Brexit beyond the March 29 D-Day. Far be it to argue with the will of the market, but that could prove misguided and prone to correction.
Australian jobs numbers:
It’s not of broad-global significance – as it shouldn’t be, with the history defining events taking place in global-macro presently – but Australian employment figures will be one to watch this morning. Economists are forecasting few changes to the employment outlook: the unemployment rate is tipped to remain at 5.1 per cent, aided by estimated jobs growth of 17.3k last month. The labour market is as strong as it has been for the best part of 7 years, as the Australian growth engine hums a long at a respectable rate of knots. Rates and currency markets are reflecting this dynamic: expectations are for a fall in both, but the strong backward-looking data are keeping pronounced swings in these markets at bay, despite a weakening global outlook.
Aussie economy health-check:
A surprise in today’s labour market figures would of course lead to a touch of greater volatility. Markets are pricing in something of a slowdown in the Australian economy this year: interest rate markets have an implied probability of 40 per cent that the RBA will cut rates this year. The reasoning is simple enough to understand: major concerns are building about the strength of the Chinese economy, and Australia’s domestic property market has recently accelerated its decline. The two pillars of our economy, mining exports and residential construction, are vulnerable to this set of circumstances. While it is of low probability it will show up in today’s numbers, the pessimists are waiting for gloomier outlook to show-up in tier 1 indicators, such as employment numbers.
Chinese policy intervention:
Australia’s status as lucky country will hinge greatly on China’s ability to stimulate its way out of trouble. Policymakers are ramping up these efforts, only yesterday introducing a new policy tool to deliver credit to businesses, via safe and stable financial institutions. That news bolstered sentiment fleetingly, particularly towards Chinese equities and the markets exposed to them. Confidence isn’t high yet that these measures will be successful, with traders really waiting a true breakthrough in the trade war. It is in part what lead to the “risk-off” tone to the week: stocks are off their highs, and safe havens like US Treasuries are somewhat in vogue. It feels like a major boost is needed to reignite the bullishness that has fuelled January’s recovery rally.
Wall Street’s lead for the ASX:
Entering the final hour of US trade and Wall Street stocks are clawing their way back into the green. The Dow Jones is up, courtesy of the solid IBM and P&G results, but the S&P is currently flat, wrestling with what is becoming a key pivot point at 2630. SPI Futures are translating Wall Street’s lead into an expected 8-point drop at the open, backing up another day of losses for the ASX200. It must be said that it was a battle throughout the day between the buyers and sellers on the ASX on Wednesday. The sellers took the biscuits in the end, with selling heightening in the last hour of trade. 5780-5800 is where the index may find its support in the short-term and determine whether a further sell-off is looming.
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.
Live prices on most popular markets
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.