The risks remain the same for global markets this week, however some good-news stories are coming to the fore.
1. Emerging markets: Regarding the risks: emerging markets are still well out of vogue and one expects that to persist for some time yet. Sentiment is a crucial factor here and plays to the view that the problems within these markets tie into their natural foreignness and obscurity. The MSCI emerging market index was down around about 1.3 per cent to start the week, the effect of which was most acutely felt across the Asian region.
Of course, much of this is due to heating-up of the US-China trade war, which appears less like escalating and more like rocketing out of control.
2. ASX: SPI futures are pointing therefore to a flat start for the ASX200 now, following a day that marked the 8th successive lower-close for Australian shares. It must be said that yesterday’s outcome was vastly better than that seen on any day last week: the ASX200 was effectively flat, down by 0.03 per cent. The major drags were stagnant materials and financials stocks, which appeared to demonstrate little desire to orchestrate a move higher for the local market. Growth stocks bounced, in what is a good sign for more bullish investors, with the health care and information technology sectors bouncing.
However, unlike the last several months where Australian shares have traded independently of their Asian neighbours, indications are that the ASX200 is now being grouped by traders with bleeding regional markets.
3. Asia suffering: The Asian region is generally displaying the harshest symptoms of global economic and financial risks, and quite justifiably so given US President Trump’s special animosity for China. Yesterday was on balance another poor one for Asian indices, despite some reasonably good news coming out of the region. The Nikkei climbed 0.3 per cent owing to solid GDP figures, and Chinese data yesterday showed healthy inflation and export figures.
The possible ramifications of total tariffs on Chinese goods however was too much to ignore, tipping the Hang Seng Index precariously close to bear market territory, and pushing the CSI300 merely points away from new year-to-date lows.
4. Europe: European markets proved far more resilient overnight, ignoring the worst elements of the weak Asian lead. The Stoxx 600 ticked higher overnight, while the FTSE held steady and the DAX added 0.2 per cent. The positive sentiment was underpinned by news that Europe’s top Brexit negotiator, Michel Barnier, foresees a Brexit deal being reached as early as November; along with a very respectable UK GDP print.
The day’s trade doesn’t come close to addressing the fundamental concerns driving European markets, with the DAX for one sitting a long way off where it was only 2 weeks ago, but the boost in confidence did support the Pound and Euro, with the former jumping back above the 1.30 handle last night.
5. Wall Street: Trading on Wall Street provided little new information overnight beyond a reminder that US indices remain strong in midst of disorder. US tech stocks recovered some recent losses, pushing the NASDAQ 0.27 per cent higher, although the FANGS continued to struggle consequent to US President Trump’s threats towards Apple of the weekend, coupled with a potential regulatory crack down on social media giants.
The Dow Jones showed signs of the weakness plaguing industrial stocks, slipping by a further 0.23 per cent last night, led by losses from Boeing. The call on US stocks presently is still that the fundamentals are strong enough to support further gains in US indices. Nevertheless, while investors stay spooked by macro risks, new record highs appear a little way off.
6. Stability returns: Outside of the equities space, markets to start the week are relatively more stable. The ubiquitous US Dollar is in keeping with its uptrend, held together by the solid fundamentals pushing interest rate expectations higher. In saying this, IG data is showing an increase in long positions on the GBP and to a lesser extent the EUR.
The same applies for the AUD, with client sentiment measures indicating 76 per cent of the market is long the AUD, though it must be expressed any bounce higher towards resistance at 0.7250 and 7310, for example, would remain in the prevailing downtrend. Corporate credit spreads have also eased to start the week, suggesting some impetus for stronger activity in equities in the days ahead.
7. What's on: The day ahead across the globe is quite light on fundamental data, a dynamic expected to persist at least until the back end of the week. In Australia, the Business Confidence reading will be released, and will give a small insight into how corporate Australia feels amidst the recent domestic political drama and broader concerns relating to the global economy.
The day’s trade will be little effected by this release though: instead, traders will be far more concerned about the performance of markets in the broader Asian region, particularly given futures markets are indicating another sell-off today in Chinese and Hong Kong equities.
8. Market watch:
SPI futures were up 1 point at 6138 at 6.30am AEST
AUD +0.1% to 71.14 US cents (Overnight peak: 71.32)
On Wall St: Dow -0.2% S&P 500 +0.2% Nasdaq +0.3%
FANG: Facebook +0.7%, Amazon -0.7%, Apple -1.3%, Netflix -0.1%, Alphabet flat, Microsoft +1.1%
In New York, BHP -1.3% Rio +0.4% Atlassian +1.1%
In Europe: Stoxx 50 +0.5% FTSE flat CAC +0.3% DAX +0.2%
Spot gold -0.1% to $US1195.78 at 2.16pm New York time
Brent crude +0.6% to $US77.31 a barrel
US oil -0.3% to $US67.53 a barrel
Iron ore -1% to $US67.81 a tonne
Dalian iron ore -0.8% to 494 yuan
LME aluminium +1.3% to $US2095 a tonne
LME copper -0.4% to $US5910 a tonne
2-year yield: US 2.71% Australia 1.99%
5-year yield: US 2.83% Australia 2.14%
10-year yield: US 2.94% Australia 2.57% Germany 0.40%
US-Australia 10-year yield gap: 37 basis points
This column was produced in commercial partnership
between Fairfax Media and IG