Fed afterglow fades, as traders turn attention to growth and trade

Sentiment turns and economic health returns to fore

The post-Fed positivity proved short-lived. Risk appetite in broader financial markets was sapped overnight, after the release of some sobering trade-war news, and some weak US economic data. Concerns about global growth have returned – in part due to, too, data that showed Chinese manufacturing contracted again last month, and the Hong Kong economy has slipped into recession. This combination of factors saw the S&P 500 drop, despite some strong company earnings reports. Brexit developments were the silver lining last night, and boosted hopes of a clearer path to a UK and European divorce. The poor overnight lead is setting-up another weak day for the ASX 200.

China undermines enthusiasm for trade-deal

For some, it was a bit of a “duh!” moment: hopes for trade-war progress were hindered by a Bloomberg report last night that the Chinese doubt a long-term trade-truce with the US is truly possible. A reminder of the intractable problems posed by zero-sum power politics, the story had the effect of diminishing a degree of the bullishness engendered by a looming “phase-1” trade deal this month. The story washed-out what would have otherwise been considered a day of progress in trade-talks. Reportedly, the US and China today will hold a phone-call today to determine a location to sign its “partial” trade deal.

US economic data disappoints, prefaces big night of data tonight

The bearishness elicited by the latest trade-war reports were compounded by some weak US data last night. A gauge of US manufacturing activity fell significantly last month, heralding concerns that business conditions in the US are still deteriorating. It sets up an end to the week almost solely focused on US economic data. US ISM Manufacturing PMI and US Non-Farm Payrolls are released tonight. Traders will be watching intently to see whether business activity continues to contract in the US economy. And on top of that, whether that contraction is beginning to manifest in an already softening US jobs market.

China’s and Hong Kong’s economy demonstrably weaker

It’s not just US data that’s getting traders somewhat antsy. The global economic data “pulse” in general was underwhelming last night and yesterday. Canadian GDP data missed expectations. Chinese Manufacturing activity was also revealed to have declined by more than forecast, while Hong Kong’s economy was announced to have officially entered recession. The days’ worth of “bad news” resulted in classic risk-off behaviour in global markets by the end of the US session. Stocks fell across the globe, bond yields dived, igniting a rally in gold, while oil prices fell, the Japanese Yen climbed, and the Australian Dollar gave up early gains to close Thursday’s trade lower.

Growth concerns distract from solid day for US corporates

The macro washed out the micro on Wall Street. US earnings season rolled on, and yesterday, delivered some strong results. Facebook and Apple reported early yesterday morning, and beat analyst estimates. That kept US tech stocks supported, with NASDAQ down only 0.1%, compared to the S&P500s 0.5% overnight. It’s still proving to be a better than expected US reporting season – even if that has come off a “low base”. EPS growth is now expected to only contract this quarter by -2.4%. The number of “positive surprises” has fallen to 74% according to Bloomberg data – but that remains relatively high.

The path to Brexit smoothed a little more

In what might be considered, at least for financial markets, a silver lining to last night’s trade, a morsel of Brexit related news raised the chances of a smoother Brexit. Nigel Farage’s Brexit Party, reportedly, will be removing hundreds of its candidates from this December’s UK General Election, in order to open the doors for a Tory majority parliament. The Pound rallied off this news – it was also supported by the weaker USD – to push towards the 1.30 level once again. The market’s overall view appears to be that, finally, Brexit will, this time, arrive before the end of the next deadline.

ASX to fall at open, possibly ending a soft week for Aussie equities

The weak lead handed to it by Wall Street will see the ASX200 fall by around 30 points this morning. It backs up another day yesterday whereby the ASX failed to capture the positivity generated by record high in US equities. Undoubtedly, there remains low appetite for Australian equities in the very short-term. However, the poor showing for the ASX200 in Thursday’s trade was likely a quirk of domestic concerns and index composition. The financials were responsible for 23 of the 26 points shed from the index, after ANZ’s disappointing report card prompted concern about, and a subsequent sell off in, bank stocks.