Global markets find themselves in a holding pattern. On the one hand, we are heading into a familiar seasonal vortex of inactivity for the Developed World's markets. And yet, conditions are reflecting more than the traditional mid-year lull with a market that has positioned itself for a progressive and extreme reach for return.
There is a tangible sense of doubt among many bulls about the exposure that they have built up over the months and years, but little will to jump off the train. Though, given the increasing number of economic, geopolitical, monetary and financial threats popping up around the globe; a passive obliviousness is not a wise approach to managing one's investments.
More BusinessDay Videos
- Video duration
- 02:40
Australia's economic growth conundrum
Australia's economic growth conundrum
Recent retail and capex numbers have shown positive signs of growth but some forecasters are predicting that the March quarter's GDP figures will be heading in the opposite direction. (This video was produced in commercial partnership between Fairfax Media and IG Markets)
Up Next
This week all eyes are on Janet Yellen
- Video duration
- 04:37
- Video duration
- 04:37
This week all eyes are on Janet Yellen
This week all eyes are on Janet Yellen
As we go into a new week, the focus will be back on the US Federal Reserve. (This video was produced in commercial partnership between Fairfax Media and IG Markets).
Up Next
Sterling stunned by UK election shock
- Video duration
- 01:31
- Video duration
- 01:31
Sterling stunned by UK election shock
Sterling stunned by UK election shock
Sterling spiralled lower on Friday as British elections left no single party with a clear claim to power.
Up Next
ASX winners and losers - a snapshot
- Video duration
- 00:43
- Video duration
- 00:43
ASX winners and losers - a snapshot
ASX winners and losers - a snapshot
The stand out listings traded on the ASX captured at key moments through the day, as indicated by the time stamp in the video.
Up Next
Miners eye Europe's largest lithium deposit
- Video duration
- 01:39
- Video duration
- 01:39
Miners eye Europe's largest lithium ...
Miners eye Europe's largest lithium deposit
An Australian company says it's found lithium deposits in the Czech Republic amounting to 1.3 million tonnes.
Up Next
The last car maker in Australia
- Video duration
- 00:59
- Video duration
- 00:59
The last car maker in Australia
The last car maker in Australia
Melbourne based Tomcar makes rugged off-road vehicles and could be the future of Australian manufacturing.
Up Next
What a hung Parliament means for the pound
- Video duration
- 01:46
- Video duration
- 01:46
What a hung Parliament means for the pound
What a hung Parliament means for the pound
The pound fell sharply after an exit poll projected the Conservative Party would fall short of a majority in parliament.
Up Next
GDP slows less than estimated
- Video duration
- 02:34
- Video duration
- 02:34
GDP slows less than estimated
GDP slows less than estimated
With interest rates expected to be on hold for the rest of the year, Morgan Stanley Australia Strategist Daniel Blake says the economy is a victim of its own success.
Australia's economic growth conundrum
Recent retail and capex numbers have shown positive signs of growth but some forecasters are predicting that the March quarter's GDP figures will be heading in the opposite direction. (This video was produced in commercial partnership between Fairfax Media and IG Markets)
The local market is set to open marginally higher ahead of the release of GDP data.
Rebalancing on the horizon?
1. Wall Street: By the time US liquidity took the yoke, there was already a mild risk aversion hanging over the world's capital markets. The S&P; 500 eased back for the second consecutive session on the open – though we are still an easy stone's throw to record highs. It is worth noting that the US benchmark has gone 13 trading days (excluding weekends and holidays) without a 1 per cent drop, 329 days without a 10 per cent correction and 2,069 since the last 20 per cent correction – the technical 'bear' market. The question traders need to ask themselves is whether such long breaks make a rebalancing more imminent.
2. Anticipation: While the docket ahead, has a range of impressive event risk, anticipation will keep drawing traders' attention forward. Thursday's explosive mix between the ECB rate decision, the UK's general election and former US FBI Director James Comey's testimony before Congress can readily stir up hornets' nests individually or collectively. We shouldn't be too surprised if the market decides to hold off on major changes in exposure until the lightning has struck.
3. RBA: The RBA kept interest rates unchanged at 1.5 per cent as fully expected. The outcome was seen as less-dovish-than-expected though Governor Lowe does think we could see a lower GDP print for the March quarter. The RBA warned that under-employment (a global phenomenon) was limiting wage gains and is leading to lower than desired household spending.
The December 2017 Cash Rate Futures level is below the 1.5 per cent current rate at 1.44 per cent showing futures traders are anticipating a rate cut. And, they have likely become more confident of their view after recent bank downgrades, which the RBA-validated after confirming a slowing in housing prices.
4. ASX: Today, the futures are pointing to a mildly positive open. Yesterday, financials led the ASX lower resulting in a drop of 1.1 per cent for the index - though the largest percentage decline was seen in utilities. The index saw its largest fall since early March and has reached the lowest levels since February. In the financial sector, there are natural concerns over the flattening yield curve. Flattening sovereign yield curves like the AU 2-10yr spread, at its lowest in 3-months at 80.4bps, show concerns of future inflation expectations. The concern can also be seen through AU 10Yr breakevens which is known as the bond market's inflation barometer. AU 10Yr breakevens are trading at their lowest levels since early November in the wake of the US Presidential Election. Both of these developments are not unique to Australia, but that won't keep the RBA from worrying if the flattening persists.
5. Australia GDP: For local event risk, the top listing today is the 1Q GDP release. The consensus forecast from economists is already setting the bar low with a 0.3 per cent bout of growth through the three month period following the previous period's 1.1 per cent swell. According to the RBA, this would be in part a natural course correction as the 'variation' balances out. Against the weakened spending (prior to April's pop) and construction figures recently as well as the 0.7 per centage point detraction from GDP due to the period's $3.1 billion deficit, that would seem a fitting forecast. Yet, the central bank remains optimistic that this will be a passing waver.
6. Australia Dollar: The Aussie's 24-hour historical volatility outpaced other G10 currencies, even the impressively strong JPY, which rose ~1 per cent to the USD. On the release of the unchanged cash interest rate, AUD per USD fell to 0.7457 but then broke higher above the 50-day moving average (at 0.7501) for the first time since March. Much of the rise in AUD could be attributed to the fall in USD thanks to mounting concerns that the Fed will soon succumb to the breakdown in the reflation trade. Currency traders are likely now keeping an eye on the 200-day moving average and the May 2 high at 0.7529 and 0.7556 respectively.
7. Commodities: There remains a general sinking feeling throughout the commodities market. The largest ETFs and indexes (DBC, DJ-UBS, GSG) show the asset class staged at or near the floor of the past 12-15 months' range. Oil has been a big contributor to this weakness, but the Qatar isolation news from Monday doesn't seem to have redefined the market's bearing. Looking for bright spots, gold is arguably the brightest. Having cleared $US1,280, there is little arguing the descending trendline resistance that began with 2011's record high has been cleared.
8. Market Watch:
SPI futures up 6 points or +0.1 per cent to 5673
AUD +0.35 per cent to 0.7513 US cents (Overnight range: 0.7457 – 0.7522)
On Wall St, Dow -0.1 per cent, S&P; 500 -0.1 per cent, Nasdaq -0.04 per cent
In New York, BHP +0.34 per cent, Rio +0.93 per cent
In Europe, Stoxx 50 -0.71 per cent, FTSE -0.01 per cent, CAC -0.73 per cent, DAX -1.04 per cent
Spot gold +1.08 per cent at $US1293.66 an ounce
Brent crude +0.65 per cent to $US49.79 a barrel
Iron ore 0 per cent to $US55.35 a tonne
Dalian iron ore at 427.5 yuan -1.04 per cent
LME aluminium -1.45 per cent to $US1903 a tonne
LME copper -0.65 per cent to $US5628 a tonne
10-year bond yield: US 2.135 per cent, Germany 0.248 per cent, Australia 2.369 per cent
This column was produced in commercial partnership
between Fairfax Media and IG