Delaying the pain of uncertainty
The pain of uncertainty, when it comes to two of the world’s big macroeconomic issues, looks likely to persist for a little while yet. Two stories, to be elaborated on in a moment, defined market-headlines overnight: a meeting between US President Donald Trump and Chinese President Xi Jinping won’t happen until at least April; while the UK House of Commons has voted overwhelmingly to extend the Brexit-deadline, though with no clear path forward from here. The frustration is palpable, and its apparently resulted in a level of exhaustion for financial markets. After a bit of chop, Wall Street is trading in a cold-fashion, only slightly down for the day, handing the Asian region little inspiration for the day ahead.
No march meeting between Trump and Xi
On the trade-war, market participants were a touch confused. No imminent meeting, as had been hoped, between the top-brass of the US and Chinese governments, has sapped confidence. But the conclusion reached, apparently, as the news has been digested through the North American session has been “well, what did we really expect?”. It’s been the problem with chasing sentiment lately when it comes to the trade-war. Tensions have clearly de-escalated, and markets have reflected that in pricing. However, no path has been put forward, no real solutions offered, and never, at any stage, have the deep structural concerns underpinning the US-China stand-off – which may well persist for years – been adequately addressed.
Anything to relieve the pressure
It’s been one of those “lipstick on a dead-pig” situations: the conflict is quite fundamentally intractable. But that’s been well understood, and it would be wrong to say markets don’t realize that. All market participants are looking for is a superficial solution that will release the pressure valve a little and ensure that things don’t get worse – a loosening of the shackles, if you will. It pertains mostly to Chinese economic growth, this desire, and it was reaffirmed yesterday. The Middle Kingdom, already mired in its own structural and cyclical issues, is still showing signs of an economic slowdown. The economic data dump yesterday, though not a categorical disaster, revealed an economy suffering from diminishing activity.
The latest Brexit can-kicking exercise
So not to become too preoccupied the trade-war: the other big case of can-kicking transpired in the Brexit debacle last night. In round three-of-three of this week’s Brexit-battle in the UK House of Commons, UK MPs voted overwhelmingly to extend the March 29 Brexit-deadline. Coming into this week, this was the expected, and perhaps hoped-for, outcome from market participants. Judging by market activity, the formal approval of a Brexit-delay hasn’t diminished totally the risks Brexit presents to financial markets. A no-deal hasn’t been taken off the table entirely, and a path forward for Brexit hasn’t been outlined, let alone agreed to. It’s a prolonging of uncertainty and chaos: the Pound’s pullback today from its weekly highs tells us so.
An unremarkable, and unreliable lead
Out of last night's trade, the ASX 200, just like markets at large, will be grasping for a lead. This goes equally for the bears as it does the bulls -- right now, there's just as little reason to sell as there is to buy. Wall Street's stall below 2815 again demonstrates this overriding attitude: with what we know, maybe stocks are just where they ought to be. SPI Futures suggest that the ASX 200 will jump 10 points or so at the open, though given the split in behaviour between Asian and North American traders this week, maybe this isn't a strong indicator of the morning's sentiment. As such, absent a lead, the interest could be in some major risks coming-up, instead.
Are we turning Japanese?
There's plenty on the calendar in the next 7 days. The Asian session will concern itself primarily with the Bank of Japan meeting today. No surprises: little policy change is expected from the meeting. A theme in markets across the globe recently has been a pivot by central bankers to dovish biases, if not downgrades to their economic outlook. By some, it's being said that developed markets are "turning Japanese". That is: a looming global growth slow down means Western monetary policy will resemble that of the ultra-interventionist, negative rate inducing BOJ. Through this lens, the BOJ meeting will be viewed today: what can they tell us about how the world's other major central banks will adjust policy in the future?
Next week’s pressure-points
We may not have to wait too long to gather hints. Next week is big, and centres around several central bank related events. At home, the RBA's Minutes are released. The Bank of England, still in the shadows of Brexit, will also meet. But, as it always is, the major event will be the US Federal Reserve’s meeting, at which the Fed will keep rates on hold. Overlaying this, several European PMI figures, a swathe of UK data, and local employment figures are released. It will be a week that offers to break markets’ current holding pattern and address its long-existing fundamental dyad: the interplay between international financial conditions, and the global economic outlook.