Originally published by IG Markets
Asian trade unfolded in the shadows of the US Federal Reserve's monetary policy meeting yesterday.
The sentiment: The takeaways from the Fed were ambiguous, which fed into a tangible level of confusion and inactivity in markets in early trade. By mid-morning, markets collectively shrugged, taking away from the meeting the simple fact that the Fed wants rates higher, because they have the will and data support to justify it. Early losses were erased as this narrative unfolded, pushing indices like the Nikkei beyond its key psychological level at 24,000. Bond markets saw yields dip modestly across the globe, owing to the neutral bent taken by the Fed, with the yield on the US 10 Year Treasury Note pulling back to about 3.05 percent. The US dollar also tipped its hat to the fundamentals proclaimed by the Fed, ticking generally higher thought the day.
ASX: SPI futures are indicating a 24-point jump for the S&P/ASX 200, thanks to a bounce in US stocks overnight. The day for the ASX200, if looking purely at the activity of the index itself, was another dull one. Despite falling at the open yesterday in sympathy with risk-assets following the Fed's meeting, the Aussie market almost rushed to the comfortable trading-level it's has occupied for several weeks around 6190. Trade saw a degree of rotation out of defensive sectors throughout the day, supporting growth stocks in the information technology sector. The continued rally in oil prices drove another strong day across the energy sector, however the broader materials space fell as commodity prices plateaued, while the financials were the major drag on the ASX, maintaining its trend lower in the face of more PR problems relating to the banking Royal Commission.
Currencies: There was a blip in global markets that apparently caused the ASX200 to fall into the red for the day and sparked a rapid reshuffling in currency markets. News broke out of Europe that a nervously awaited cabinet meeting of the Italian government to discuss the country's budget could be delayed. The news has since proven to be spurious, but it was enough to spur repositioning from currency traders, pushing the already strengthening US dollar higher overnight. The dynamic shoved the euro down, dragging that currency away from challenging the 1.18 handle, to be now trading right on a point of resistance at 1.1645. Naturally, the AUD/USD has tumbled as an extension of the greenback's rally, breaking support at 0.7240 to eying the next key support level at 0.7200.
Global equities: The stories moving currency markets played out at the fringes overnight, as equity indices got busy reclaiming the territory abandoned in the lead-up to the US Fed's meeting. European markets demonstrated robustness, with the DAX and FTSE each higher for the day, closing trade up about 0.4 per cent. US equity indices heated up again, led by an appetite for tech stocks, which pushed the Nasdaq up over 0.6 per cent, and the benchmark S&P up by around 0.3 per cent. Despite the strong lead however, futures markets are pointing to another mixed day for the Asian region, with the Nikkei looking primed to burst out of the gates, but Chinese and Hong Kong markets set to continue yesterday's sell-off at the open.
Global growth: The underpinning factor in the equity market's fundamental strength is that despite the myriad risks facing the global economy, views on global growth remain optimistic. It was one key takeaway from the Fed's meeting on Thursday morning, and it was hammered home by US GDP data last night. The quarter's Final US GDP print confirmed growth of 4.2% for that economy, providing some level of vindication for the Fed and the booming equity market it underwrites. The variable worth watching is how this narrative translates into Chinese and broader emerging markets: a strong US economy is irrefutably good for the world, but with rising global rates and a belligerent and protectionist US President, what result the developing world will see from this confluence of factors will be curious. China's markets (for one) looks primed for a pop, supported by its policy makers determination to stimulate its economy. However, with the trade war unlikely to go away, sentiment just as much as fundamentals will dictate the conditions for traders, especially when it comes to riskier assets and trade-sensitive economies.
Tesla (NASDAQ:TSLA): A story worth telling more for its tabloid appeal to markets (permissible because of the light data week) is the news about Tesla Inc and its controversial CEO Elon Musk. The company's share price is tanking this morning, following news that the SEC appears to be set to charge Musk for making false statements about taking Tesla private. It was the "funding secured" tweet that has been the scrutinised subject in markets, following Musk's about-face on privatising the company. The news has added further volatility to a stock which has been one of the most volatile and divisive in global markets of late. Ample investors seem willing to buy into the company based on its vision and growth prospects, even despite eye watering valuations; but a slew of PR bungles has had the stock heading low while Musk himself got high. A recent absence of negative press tipped the share price in favour of the Tesla-believes, but this latest and grave drama could prove the biggest drag yet for Musk and his company, as the stock tumbles once more this morning.
Week ahead: Next week will provide much more trading fodder than this week. US President Trump and his global war on trade will remain the overarching macro concern, but the new month will bring with a spate of Tier 1 data to keep focus on the fundamentals. Locally, the headliner will be the RBA's monetary policy meeting, out of which the central bank will keep interest rates on hold. This will be followed up by Retail Sales figures on Friday, with keen interest on those numbers and what they can say about the strength of Aussie households. Internationally, a plethora of PMI data awaits, giving some view on how the unfolding trade war is affecting demand and business activity globally, while the biggest event for the week will be the monthly US Non-Farm Payroll figures, with the focus there to be naturally on the key wage growth number.