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8@eight: ASX to open the week lower

So, the S&P500 took a spill into the close of the week, shedding over 0.5 per cent, as investors began to assume that this trade-war was beginning to move from limiting physical trade, to stifle capital markets, too. The news knocked SPI Futures down in Friday’s trade, with the ASX200 expected to open 12 points lower today.

3. US economic data on Friday mixed: Investors had one eye on a big batch of US economic data on Friday, centred on the demand side of the economy. And ultimately, it delivered a mixed set of results.

The US PCE Price Index revealed a weaker inflation print than estimated, reaffirming that price pressures in the US economy remains limited. US Core Durable Goods Orders roundly beat expectations, alleviating some concerns about business conditions in America. Consumer spending missed expectations. However, doubts regarding the strength of the US consumer were ameliorated by a beat in US Consumer Sentiment figures.

4. Fed expected to cut 2 more times: The net effect of all that news was to alleviate some fears that economic activity had precipitously declined recently, while leaving wide open the room for the US Federal Reserve to cut rates again before the end of the year. The move was marginal, but the odds of another Fed cut increased slightly on Friday, with the US Dollar subsequently dipping across the board.

As it presently stands, the interest rate futures curve suggests the US Fed will be probably cut interest rates again in December, in a sequence of a further two rate cuts to end this cutting cycle by the end of 2020.

5. Oil prices fall on Saudi olive-branch: Tensions in the Middle-East and its knock-on effects on oil prices remain a hot issue in global markets. Brent Crude prices plunged -1.3 per cent to end the trading week, after Saudi Arabia announced that it would impose a partial cease-fire Yemen.

The war in Yemen is considered a proxy war between the Saudi’s and Iran, so the announced cease-fire is being read as a possible olive-branch from the Saudi’s to de-escalate broader tensions in the region. Oil prices are close now to trading back at where they were prior to Iran’s alleged attack on a Saudi oil production facility.

6. Pound rallies as bets of a BOE cut climb: The UK economy, Brexit and its consequences for the Bank of England grabbed attention during European trade on Friday night. The Pound tumbled back into the 1.22 handle – subsequently, driving the FTSE100 1 per cent higher – following a statement by BOE member Michael Saunders that the central bank may need to cut interest rates, even in the event of a Brexit deal.

Saunders justified his view on the basis that economic uncertainty is likely to persist even in the event of a deal. A rate cut from the Bank of England is currently priced-in for May 2020 now.

7. China data highlights day’s trade: China’s economy steals focus in the Asian session today, before Chinese markets fall into radio-silence ahead of the Middle Kingdom’s Golden Week holiday. Official PMI data is released this morning, and will give a vital read into the strength of China’s economy.

After last week’s major European PMI data miss, which economists attributed in large part to the effects of the trade-war, market participants remain on high alert for further signs of weakness in China’s economy. Today’s Manufacturing PMI is expected to show just that, printing at a “contractionary” 49.6 – though it must be stated that, if realized, will mark an improvement from last month’s figure.

8. Market watch:

ASX futures down 12 points or 0.2% to 6683

  • AUD +0.2% to 67.64 US cents
  • On Wall St: Dow -0.3% S&P 500 -0.5% Nasdaq -1.1%
  • In New York: BHP +0.6% Rio +1.1% Atlassian -4%
  • In Europe: Stoxx 50 +0.4% FTSE +1% CAC +0.4% DAX +0.8%
  • Nikkei 225 futures -0.4% Hang Seng -0.3%
  • Chinese markets will be closed October 1-7
  • Spot gold -0.5% to $US1497.01 in New York
  • Brent crude -1.3% to $US61.91 a barrel
  • US oil -0.9% to $US55.91 a barrel
  • Iron ore down US6¢ to $US90.85 a tonne
  • Dalian iron ore +2.7% to 656.5 yuan
  • LME aluminium -0.1% to $US1735 a tonne
  • LME copper +0.8% to $US5767 a tonne
  • 2-year yield: US 1.63% Australia 0.72%
  • 5-year yield: US 1.56% Australia 0.71%
  • 10-year yield: US 1.68% Australia 0.94% Germany -0.58%
  • 10-year US/Australia yield gap: 74 basis points

This column was produced in commercial partnership between The Sydney Morning Herald, The Age and IG

Listen to IG’s podcast Chatting Markets here

Information is of a general nature only.

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