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Traders chase headlines, as market sentiment swings

The ASX200, just for one, swung from -0.3% loss, to a 0.4% gain, only to close flat for the day.

Markets spinning in circles as trade-talks get underway

It’s been a slightly dizzying 24-hours for the financial markets. Speculation is on overdrive regarding the likeliest outcomes for the US-China trade talks. Though it seems like chaos, it all amounts to little more than noise, as short-term traders have fun with trying to profit from the swings in sentiment. Fundamentally, little about the talks can be known yet. However, it seems investors’ cautiousness is turning to hope once again. Amidst all the noise, there was other rather high impact news reported last night. US CPI missed expectations very slightly. Some progress has seemingly been made in Brexit-talks between the UK and Ireland. And ECB minutes were also published.

Choppy trade as markets speculate about trade-talks

Financial markets, particularly in Asia, swung from trade-war-headline to trade-war-headline yesterday, as traders madly speculated upon the likeliest of outcomes for current US-China trade talks. It all began with a South China Morning Post report that suggested Chinese delegates were planning to cut talks short, citing disagreements on the terms of discussions. It set off a flurry of reports and leaks from both the US and China, countering, confirming, countering, confirming each bit of news. The day’s trade became very choppy, as sentiment vacillated. The ASX 200, just for one, swung from -0.3% loss, to a 0.4% gain, only to close flat for the day.

Funny-money messing with the headlines

Though from the outside it might have seemed that markets were experiencing a series of manic-to-depressive episodes, the truth is a little more benign. The volatility was more a testament to behavioural-finance rather than fundamental economics, with price action more-than-likely driven by short-term traders, probably enabled by computers – or at least their own audacity – in a bid to make a quick buck. The substantial part of the market were at worst non-plussed: market activity was very low yesterday, demonstrating that things were hardly frenzied. Investors, broadly speaking, sat back and waited for firm clues for which direction trade-talks take, before moving decisively in the market.

Cautious optimism takes hold of the markets

And judging by the price action witnessed in markets in European and North American trade, cautiousness is transforming very slowly into hope. Activity has been relatively low, yet still modestly higher than previous trading sessions this week. Stocks climbed across the board, with the S&P 500 rallying over 0.5% the DAX climbing roughly the same, and the FTSE 100registering a 0.3% jump. The better barometers of market fundamentals in bond, commodities and currency markets also demonstrated the greater hope for a trade-détente. The US 10 Year Treasury yield jumped 6 points, gold fell 0.8%, and the Yen dipped 0.4%.

US CPI data shows Fed has room to cut rates

There were several other stories of fundamental significance last night. One: US CPI data was released, and showed that consumer price growth slowed once again last month. The headline monthly figure came in flat, leaving inflation at 1.7% in the US on an annualized basis. The data will only feed the debate currently being undertaken by the US Fed as to how it should approach it’s inflation targeting, as price growth remains chronically low. For market participants however, the soft print is welcomed news. The Fed has the space to cut rates further, with relatively little risk of stoking an inflation breakout.

Pound rallies on apparent Brexit-breakthrough

Brexit was also in the headlines in European trade, and though it manifested little in global market pricing, the news possessed some punch as it applies to UK assets. Optimism was bolstered by reports, following a meeting between UK PM Boris Johnson, and his counterpart from Ireland, Leo Varadkar, that both men could “see a pathway to a possible deal” on Brexit and the contentious Irish backstop. That news sent the Pound on quite a significant rally, pushing over 2% higher overnight. This came despite was another disappointing GDP print out of the UK, which revealed growth in the UK contracted last month.

ECB divided, but still expected to cut rates

The final bit of tier-1 news last night was the release of the minutes from the European Central Bank’s Minutes last meeting. There were two significant messages from the ECB. It collectively sees the need for greater fiscal stimulus in Europe, as the efficacy of monetary policy wanes. And the board remains rather divided on whether a fresh round of quantitative-easing in the Euro-zone will have any benefit to the bloc’s economy. That dissent forced traders to unwind bets slightly of future easing from the ECB. Nevertheless, more rate cuts are still being priced-in, with Euro likely to remain in its fundamental downtrend.

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.

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