In Australia, the last traded price in SPI futures is pointing to a 4-point drop at the open for the ASX200 this morning.
- The many facets of the global growth story: There’s no shortage of causes for this looming slowdown – and in the financial media, each one is getting a good exercising. The trade war remains the popular one, which is providing a convenient explanation for the confluence of confusing and complex causes for China’s recent economic malaise.
This thread gets pulled on to describe why Europe is feeling the pinch too, being the geography wedged in the middle of the trade war’s heavyweight combatants. Throw in a sprinkling of Brexit anxiety and internal political unrest in the continent and that’s the story driving Europe’s economic outlook. The US economy is still humming, and the data coming out of the states is still showing a robust economy. Nevertheless, price action says that’s being somewhat ignored, with yields betraying an underling anxiety about economic health.
- What the bond market is saying: Essentially, it’s all written in yields at present. A few unwanted milestones were achieved in bond markets on the weekend. The most significant was in German Bunds, which saw the yield on its 10-year fall to 0.08 per cent – it’s lowest point since 2016 – even though rates markets left unchanged the implied probabilities for ECB decision making in 2019.
Ten-year Japanese government bonds are back below 0 per cent, as markets stay resigned to the fact that the Japanese economy will see no signs of inflation for the foreseeable future. And despite there being an absence of data impetus to cause this – other than a general “risk-off” tone for Friday’s trade – US Treasuries climbed as traders priced in the increased chance the Fed will cut rates this year.
- The RBA adds its 2 cents worth: The market’s central premise that interest rates will need to fall the world over manifested just as clearly in domestic trade on Friday. The RBA’s Statement of Monetary Policy, released on Friday morning, delivered to markets the material to price in further downside risks for local rates.
Following the central bank’s meeting on Tuesday last week, and RBA governor Philip Lowe’s influential speech on the Wednesday, it’s perhaps a surprise that anymore dovishness from the RBA could be priced into the forward curve. Lo and behold, there was, with the immediate reaction from markets towards the RBA’s SOMP to increase rate-cut bets in 2019 to over 60 per cent, bid higher Australian commonwealth government bonds (ACGBs), and to sell out of the Australian dollar – pushing the local unit below the 0.7100 handle, subsequently.
- The RBA’s take on economic growth: It was another softening of the RBA’s economic growth outlook that spurred the flurry of activity. The SOMP was far from a manifesto of doom and gloom. However, what markets have for a while been predicting came clearly in the RBA’s opening lines of the document: “GDP growth slowed unexpectedly in the September quarter … The bank’s growth forecasts have been revised down in light of recent data, particularly for consumption. GDP growth is expected to be around 3 per cent over this year and 2¾ per cent over 2020.”
There was plenty of good news contained within the SOMP, it must be stated, especially as it relates to the outlook for the labour market. Sentiment clung to the growth outlook nevertheless, as traders assessed how a global economic slowdown will manifest Down Under.
- The ASX followed global equities lower: The fall in yields on ACGBs and the Australian dollar proved once again supportive of the ASX200, but the effect was fleeting. It was a bearish day for the ASX on Friday, no matter which way you spin it. It was simply one of those days for risk assets, as the bulls took themselves to the sidelines for a breather, at the end of a week that was on balance very good for stocks in Australia.
Equity market strength throughout last week was perhaps lacking in other parts of the world: Wall Street finished its week higher by a very slim margin, equity markets in continental Europe shed over 1 per cent across the board, the Nikkei dropped over -2.00 per cent, while a weaker Pound kept the FTSE in the green.
- Price action for the ASX200: The last traded price in SPI futures is pointing to a 4-point drop at the open for the ASX200 this morning. The market demonstrated some signs of short-term exhaustion on Friday, after its face-ripping rally earlier in the week, as higher than average volumes propelled the index higher.
Resistance at ASX200’s September low at around 6100/05 was dutifully respected as the week’s high. The daily-RSI is still in over-bought territory, though not flashing a sell signal nor a major change in momentum yet. The week’s break of the 200-day EMA is seeing that moving average slowly turn higher, which bodes well for the bulls. In the immediate future, the long-awaited pullback could be upon us here, with the November high at 5950 the next logical support level to watch.
- Copper was set for a fifth week of gains on Friday: But the rally faltered after US President Donald Trump said he did not plan to meet China’s Xi Jinping before a March 1 deadline for the two countries to achieve a trade deal, Reuters reports. The news reignited concern that the US-Chinese row will worsen, damaging the already weakening global economy and curtailing metals demand.Benchmark copper on the London Metal Exchange (LME) closed down 0.6 per cent at $US6210 a tonne on Friday, but was still up around 1.2 per cent for the week after touching a two-month high of $US6289.50 on Thursday.
- Market watch:
SPI futures down 4 points to 6007
AUD -0.2% to 70.88 US cents
On Wall St: Dow -0.3% S&P 500 +0.1% Nasdaq +0.1%
In New York, BHP +0.5% Rio -0.4% Atlassian +1.9%
In Europe: Stoxx 50 -0.5% FTSE -0.3% CAC -0.5% DAX -1.1%
Spot gold +0.5% to $US1316.61 an ounce on Friday in New York
Brent crude +0.8% to $US62.10 a barrel
US oil +0.2% to $US52.72 a barrel
Spot iron ore to resume trading today
Iron ore futures SGX +3.5% to $US92 a tonne
LME aluminium -0.7% to $US1880 a tonne
LME copper -0.6% to $US6210 a tonne
2-year yield: US 2.47% Australia 1.66%
5-year yield: US 2.44% Australia 1.70%
10-year yield: US 2.63% Australia 2.10% Germany 0.08%
US-Australia 10-year yield gap: 53 basis points
This column was produced in commercial partnership
between The Sydney Morning Herald, The Age and IG