Trump-Tweet #1: US President Trump announced yesterday what had long been assumed: the trade-truce will be delayed, because of the “very productive talks” going on between his administration and Chinese policymakers. Understandably, the formal recognition that tariffs won’t be hiked to 25 per cent (from their current rate of 10 per cent) on $US200bn of Chinese goods stoked risk sentiment. The overall impact wasn’t quite as deep and broad on one might have hoped, however. The reasoning is logical: progress in trade talks, as alluded to, has long been well known. In fact, for several weeks, in a gradually thinning market recovery, it’s been trade-war headlines that have been providing the sugar hit to sentiment to keep this run going at all.
AUD, RBA and ACGBs: The AUD/USD, and Australian assets, constitute many of the favoured proxies for trading trade-war headlines, and the news’ impact on price action has illustrated nicely the mixed opinion in markets relating to the developments. Yields on short-term bonds are a little higher, but interest rate markets haven't shifted much, while the yield on 10 Year ACGBs has actually fallen to 2.08 per cent, showing that traders are reluctant to price in markedly improved global growth conditions just on the basis of the latest trade war story. As the speculative tool of choice amongst traders to play-with trade war headlines, there has been a noteworthy rally in the AUD, over the last 24 hours, towards resistance at 0.7200.
ASX200: The ASX benefitted somewhat from positivity stemming from the subsequent climb in commodities prices, along with yesterday’s remarkable ~6 per cent rally in Chinese equities. Breadth across the ASX200 was so-so, with only 56 per cent of stocks clocking gains yesterday. But volume was quite high, especially into the close and during the after-market auction, where most of the day’s gains were achieved. It was the materials sector, naturally, that added most to the index overall: it delivered 8 points to the ASX200. At the outset today, Australian stocks look set to experience a soft start, with SPI Futures indicating a drop of 11 points come the opening bell, mostly due to a pull-back in commodity prices last night.
Trump-Tweet #2: That’s not to say the commodity complex has broadly suffered in overnight trade: copper is still higher, with many other industrial metals. It’s been a tumble in oil prices that’s weighed on commodity markets, courtesy – as is typical – of a Trump-Tweet. The US President has a thaw in his side about oil, calling for OPEC, in the face of rising prices, to “relax and take it easy”. Oil was probably getting a touch overbought, so a catalyst to push prices lower need not to have been a big one. What this story shows though, is how seriously traders take the President’s influence on OPEC, especially given the reportedly close ties between the White House and the Saudi royal family.
Trump-Tweet #3: If US President Trump hates higher oil prices, then he loves a climbing stock-market with the same vigour. Another Tweet last night: “Since my election as President the Dow Jones is up 43% and the NASDAQ Composite almost 50%. Great news for your 401(k)s as they continue to grow.” It’s hard to argue against the notion that this US President sets policy with the stock-market front of mind. Trump’s enthusiasm hasn’t stoked buying activity in the S&P in the same way that the extension of the trade-war détente has, but it does raise the question of whether, along with the recently exercised Powell-put, a “Trump-put” now exists somewhere against the US stock market, as well.
From Trump to Powell: Sometimes it feels this is just US President Trump’s financial-world, and all we are doing is living (and trading) in it. It’ll be welcomed by many, surely: the US Fed’s view on the US economy and financial conditions will progressively shift into focus today. Fed-Chair Powell is due to testify before congress tonight (AEDT), kicking off several days of speeches and testimonies. The S&P has been powered along by the Fed’s recent back down on rates, and market pricing suggests that few believe a hawkish Fed will return in this cycle. As for US stocks, while the recovery is still intact, major resistance is looming at 2815, with diminishing volumes suggesting conviction in the market is slowly waning.
Currency markets’ holding pattern: As for the almighty Dollar, it’s off its highs, which isn’t a bad thing for US markets and the US economy. Zooming out to the wider picture, and the US-Dollar is sitting comfortable in the middle of its multi-decade range. There’s a holding pattern going on in currency markets at present, underpinned in large part by a range bound EUR/USD. 10 Year Treasury/Bund spreads aren’t showing much life either, curbing volatility, although the overall trend in markets is bullish government bonds. The shifter in currency land overnight was news that UK Labour leader Jeremy Corbyn will back a 2nd referendum on Brexit, powering the Cable above 1.31, as traders back their bets that Brexit will indeed be delayed.