Global markets stabilised overnight and Wall Street jumped higher as central banks around the world signalled they would support markets with stimulus in the wake of the coronavirus. At 7.55am AEDT, futures are pointing to a gain of 21 points, or 0.3 per cent, at the open for the ASX.
1. A recovery, or just a dead-cat bounce? Stocks have bounced and volatility has eased, as markets price-in a coordinated policy response from global central bankers to manage fears about the financial impacts of the coronavirus.
Wall Street jumped higher overnight to end a seven-session losing streak.Credit:Richard Drew
In emergency moves, a spate of central bankers and finance minister flagged yesterday and overnight their willingness to support markets with rate cuts and other stimulus measures. That sent global equities on a broad-based tear, saw a spike in commodity prices, and pushed long-term government bond yields to fresh all-time lows.
2. Coronavirus and growth concerns remain: The warning that the biggest rallies happen when market sentiment is at its most bearish perhaps rings true. Implied volatility is still very high at 35, pointing to a generally uncertain market environment.
Fear regarding the coronavirus hasn’t abated, with the US announcing its 5th death because of the disease last night. And on the data front, US ISM Manufacturing figures slightly undershot expectations, with the import subindex falling to post-GFC lows, signalling a big slowdown in global trade last month.
3. A day of risk-on moves: Nevertheless, overnight price moves were overwhelmingly strong. US stocks bounced 2.5 per cent, in a rally lead by gains in defensive sectors. US Treasuries also climbed on stimulus hopes, with the 10 Year yield hitting all-time lows at 1.04 per cent briefly yesterday.
Gold responded to the lower yields with a rally toward $US1600. Oil prices surged by over 5 per cent, but pared some of those gains late in the US session. Commodity currencies lead the G10 currency map.
4. ASX200 ought to edge higher this morning: The ASX200 couldn’t quite close in the green yesterday, but SPI futures are suggesting the benchmark index ought to register a modest 21-point bounce this morning.
The ASX200 was able to claw back losses as deep as 3 per cent on Monday, courtesy of the wave of central bank policy signalling. It finished the day down by a relatively modest -0.77 per cent, with the energy, IT stocks and consumer staples sectors all finishing higher for the day.
5. RBA expected to cut interest rates today: It will be all eyes on the RBA this afternoon. A rate cut is considered a certainty, according to market pricing, with a marginal chance existing that the RBA reduces rates by 50 basis point and to its “effective lower bound” of 0.25 per cent.
If not today, then it’s only a matter of time, in the markets’ eyes, that the cash rate is cut to that level, crucially opening the door to an RBA QE program in the not too distant future.
6. AUD bounces, but remains in downward trend: Rate cuts, along with the lingering fears that the material hit to the global economy from the coronavirus is yet to be fully observed, is keeping the Australian Dollar suppressed.
The slightly lower volatility environment overnight did support a small boost in the currency yesterday, in sympathy with commodity prices and other growth assets. However, though technically oversold, the AUD/USD mired close to its decade long lows, and entrenched well within a downtrend.
7. A loaded economic calendar this week: The markets look ahead to what will be a loaded four-days on the economic calendar. Coronavirus developments tops the list of concerns. But locally, the RBA is the big one, before interest shifts to tomorrow’s GDP data.
Retail Sales numbers will come on Friday. Internationally, the Bank of Canada meets to decide policy on Wednesday. OPEC meets on Thursday in an “extraordinary meeting” to discuss possible supply cuts. While the week will reach its climax with US Non-farm Payrolls numbers on Friday.
8. Market watch:
ASX futures down 21 points or 0.3% to 6323 near 7.15am AEDT
- AUD +0.3% to 65.32 US cents
- On Wall St about 3.15pm: Dow +2.8% S&P 500 +2% Nasdaq +2.1%
- In New York: BHP +0.7% Rio +2.8% Atlassian +0.4%
- Tesla +8.5% Apple +6.3% Microsoft +2.9% Twitter +6.8%
- In Europe: Stoxx 50 +0.3% FTSE +1.1% CAC +0.4% DAX -0.3%
- Spot gold +0.7% to $US1585.93 /oz at 1.21pm New York
- Brent crude +4.7% to $US52.01 a barrel
- US oil +5% to $US46.98 a barrel
- Iron ore +5.9% to $US88.93 a tonne
- Dalian iron ore +5.8% to 653 yuan
- 2-year yield: US 0.83% Australia 0.47%
- 5-year yield: US 0.87% Australia 0.48%
- 10-year yield: US 1.09% Australia 0.80% Germany -0.63%
- 10-year US/Australia yield gap: 29 basis points
This column was produced in commercial partnership between The Sydney Morning Herald, The Age and IG
Information is of a general nature only.