Trader thoughts - the long and short of it

Markets were given a shot in the arm overnight, thanks mostly to a stall of the three-day tech-stock rout, and news that US and Chinese leaders have reopened trade negotiations.

US Trader
Source: Bloomberg

Overnight session: Markets were given a shot in the arm overnight, thanks mostly to a stall of the three-day tech-stock rout, and news that US and Chinese leaders have reopened trade negotiations. Wall Street indices have thus far climbed on the back of the boost in sentiment, the foundations of which were paved by a strong day in European markets, with the S&P leading the charge with a circa 0.5 per cent gain (at time of writing). Although undoubtedly a welcomed change in the discourse, the shift in trader psychology is tenuous at this stage, particularly considering that US President Donald Trump has often slapped down his team amid this type of trade-scuttlebutt.

ASX: SPI futures are currently pointing to a markedly stronger open for the ASX200, following a day of mixed trade for Australian shares yesterday. The Aussie market closed the session only very slightly higher at 6280, in what could be best described as a mixed performance from local shares. The load was carried by another push higher from BHP shares, as investors welcomed the news from the company that most of revenue stemming from the sale of its US shale assets would flow back to shareholders. It was an otherwise cautious day of trading by Australian investors, with the best performing sectors the defensive telecommunications and utilities sectors.

Economic data: There was a slew of fundamental data released yesterday of relevance to the Australian economy, the results of which painted a mixed picture for economy’s overall health. The major upside surprise came from the monthly Building Approvals print, which revealed approvals rocketed above expectations last month, expanding 6.4 per cent versus a forecast of 1.1 per cent. At the other extreme, Chinese PMI data undershot estimates on balance, stoking fears that a pronounced slow-down in the Chinese economy is imminent. Despite the data, markets were resistant to its effects, with the Australian Dollar continuing its sideways trading.

BOJ: The Bank of Japan was the major global event during the Asian session yesterday. Perhaps unlike most meetings of the BOJ, during which dovishness and confirmations of the status quo are the norm, there was a degree of uncertainty surrounding the outcome of yesterday’s event. This was due to the mounting speculation, generated by complaints by Japan’s strangled financial sector, that the BOJ would seriously discuss changing its controversial bond buying program. Despite the meeting ending later than usual, no announcement regarding that matter was forthcoming, with the BOJ instead reiterating its commitment to its inflation targeting.

The Yen: Trading the Yen and Nikkei were two of the major trading opportunities for global traders yesterday, largely because of the ambiguity surrounding the BOJ meeting. The weakening Yen has been the primary driver of activity in the Nikkei in recent weeks, as investors flowed into export-based companies listed within that index. The BOJ’s policy announcements and subsequent effect on the Yen were therefore being closely watched, with the USD/JPY grinding along upward trendline support in the hours leading into the event. The dovish tone struck by the BOJ launched the USD/JPY off this support line, breaking resistance at 111.40 to make a bid at cracking the 112-handle.

Apple results: Apple has reported its earnings for the quarter, generally outperforming analyst’s estimates. The report had taken on an extra level of significance in recent days, as concerns mounted amongst investors about the fundamental strength of the US tech sector following the underwhelming results produced by the likes of Twitter, Netflix and Facebook. Although the numbers are still fresh, Apple Inc shares have rallied 3% to around $195, primarily due to better than expected revenue figures and a higher EPS outcome. The news has pushed the NASDAQ 0.5 per cent higher in out of hours trade, to so far erase most of the losses it has sustained this week.

Today: The economic calendar once again looks full over the next 24 hours. During the local session, New Zealand employment data will be released early this morning and is expected to reveal sustained strength in the Kiwi labour market. Caixin PMI will add to the intrigue generated by yesterday’s official Chinese PMI figures, and may cause some volatility if it greatly undershoots forecasts. This will lead into a huge night of PMI data out of the US and Europe, which will be assessed for signs that trade war fears are weighing on global growth. Finally, all eyes will then focus on the week’s biggest event: tomorrow morning’s meeting of the US Federal Reserve.

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This information has been prepared by IG, a trading name of IG Markets Limited and IG Markets South Africa 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. International accounts are offered by IG Markets Limited in the UK (FCA Number 195355), a juristic representative of IG Markets South Africa Limited (FSP No 41393). South African residents are required to obtain the necessary tax clearance certificates in line with their foreign investment allowance and may not use credit or debit cards to fund their international account.

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