Originally published by IG Markets
The unpredictable ebbs and flows of volatile global markets delivered a positive outcome overnight, as equity markets recovered lost ground courtesy of a healthy boost of positive sentiment.
The increased investor optimism came following news that US and Chinese officials are in talks to renew trade negotiations. This comes only days from the next round of tariffs due for imposition on Chinese imports into the US from the White House, which will rise to the value of $US50b worth of goods. The favourable developments managed to distract from the uncertainty surrounding the Turkey crisis, that at this time continues unabated.
Wall Street bounced off the canvas in response to the slither of good news, regaining some of the days prior’s lost ground. The S&P 500 was up 0.9 per cent in late trade and the trade-sensitive Dow Jones was up a remarkable 1.6 per cent, while the Nasdaq lagged due to the lingering effects of the day prior’s minor tech sell-off. In what can be extrapolated to be a very good news story for the US economy, market giant Walmart (NYSE:WMT) rallied in the session, buoyed by news that it posted its best sales growth in a decade. The news affirms the strong US Retail Sales data released on Wednesday and supports the notion that the US consumer is underpinning strong economic growth.
The ASX 200 had another day worthy of a sprinkling of pride, managing to shake-off a steep fall in early trade caused by a weak lead from overseas markets, to close the day only 0.01% lower. In another day that vouched for the Australian share market’s underlying strength, the ASX proved to be one of the few shining lights in the region, with Asian equities experiencing a dumping throughout the day’s trade. Given that 6300 has been broken and the trading day ahead is expected to be characterized by a boost in confidence, the question becomes whether the ASX can again clock a decade-long high, and close above 6330.
The ASX’s success rests on whether a so far solid reporting season can continue today, with few Blue Chip and large-cap company’s reporting as compared to the last few days. In terms of interesting stories, Kogan (AX:KGN) reports this morning, but will unlikely shift market fundamentals or sentiment, while a handful of real estate and mining companies report. Yesterday witnesses some remarkably strong activity from some of the ASX’s larger reporting stocks, the most noteworthy being Treasury Wine Estates (AX:TWE) and QBE (AX:QBE), with both clocking in over 5 per cent gains yesterday. Telstra (AX:TLS) also reported and experienced a modest relief rally, while Origin (AX:ORG) energy disappointed, selling-off after the company again stated it would not be paying a dividend.
Australian economic data was also being watched by the macro-buffs yesterday, as the ABS released monthly employment data for the month of July. Coming into the event, the figures weren’t expected to rattle in the slightest financial markets, particularly that of the currency and interest rate markets, with investors writing off the prospect of RBA action for the next 18 months. The figures released yesterday were mixed, but on balance could be considered a net-positive: the Australian economy lost just shy of 4k jobs last month, but the month prior’s figures were revised upwards enough to push the headline unemployment rate down to 5.3 per cent. Interest will turn today to RBA Governor Philip Lowe’s assessment on the situation, as he testifies before the House of Representatives.
Chinese markets will be under the microscope today, especially considering the sanguine view adopted by investors last night following revelations that the US and China may be returning to the negotiating table. Chinese equities will be watched closely given their troubles recently, but its most definitely the yuan that will experience the most scrutiny today, after the USD/CNH plunged to almost 6.96 yesterday. The pair has since recovered its losses in the overnight session on the back of last night’s trade-war developments; however, knowing that the more positive trade war stories have often ended up no more than fluff, the curious point will be whether the PBOC will allow its currency to depreciate all the way to the 7.00 mark if things do turn dire.
The major global news story today will surround the latest round of Brexit negotiations, with activity in the currency markets the area to watch around this. We are creeping closer to a no-deal outcome from Brexit as a deadlock between both parties fails to break. The situation isn’t helped by the political disfunction within the ruling Conservative, which appears unable to establish a single and cogent position on the matter. The pound has taken a belting consequent to the disorder, a dynamic compounded by the roaring greenback, to trade at 12-month lows this week. The fortunes for the pound don’t appear good, but if there is a surprisingly strong outcome to the Brexit negotiations, perhaps a bounce in the GBP/USD is overdue.