Market sentiment turns with China's trade-war "pessimism"

Financial markets off to a slow start to week

Global markets have traded overnight imbued with a slight sense of pessimism. The latest batch of trade-war headlines cast a skerrick of doubt on the progress of trade-talks, and that’s being blamed for the weaker sentiment. That news came well after the end of Asian trade, however, with indices in the region yesterday climbing off-the-back of some policy intervention from the PBOC. European equities put in a much more sluggish day’s trade, though some positive Brexit developments boosted both the FTSE 100 and the Pound. The ASX 200 is set for a relatively flat start to today’s trade, on a day highlighted by the RBA’s latest policy meeting minutes.

Current trade-talk status: mildly pessimistic

Traders’ nerves were rattled a touch last night, on the reporting of news, from a CNBC journalist, that the “mood” of Chinese trade-negotiators towards a trade-deal is “pessimistic”. Apparently, the Chinese are disappointed that a rollback of existing tariffs on their economy has been slapped down by US President Trump. The news was clearly not that bad: the S&P500 has traded practically flat overnight, to trade, briefly, at record highs. But the story did cast a negative hue across global markets to begin the week, with growth sensitive assets, like oil and the Aussie Dollar, dipping; and safe-havens, like gold and US Treasuries, edging higher.

When Jay met The Donald

Speaking of things out of favour US President Donald Trump: US Federal Reserve Chair Jerome Powell met with the President overnight, to discuss the US economy and current monetary policy settings. The encounter had little material impact on financial markets. And, purportedly, the meeting went off without a hitch. In the President’s own words: “Just finished a very good & cordial meeting at the White House with Jay Powell of the Federal Reserve. Everything was discussed including interest rates, negative interest, low inflation, easing, Dollar strength & its effect on manufacturing, trade with China, E.U. & others, etc.”

PBOC cuts key interest rate, boosts confidence

The trade-news washed out was looking like a positive start to the trading week, after stock markets in the broader Asian region jumped out of the gates, courtesy of some fresh policy intervention from the People’s Bank of China. The central bank cut the rate on its 7-day repo rate – a key short-term interest rate in the country’s financial markets – by 5 basis points, in attempt to boost liquidity in China’s financial system. The move stoked greater hopes amongst traders yesterday that China’s policymakers would move decisively to support the financial system, and stimulate economic growth. The CSI300 rallied 0.8% as a result.

Path to Brexit looking smoother

Positive momentum couldn’t be sustained into the European session, as the overnight trade-war news broke. However, the news flow, arguably, proved positive for the region’s fundamentals. The Pound rallied, and the FTSE outperformed the continent’s stock indices, on reports that UK Conservative Party candidates have signed a pledge to support UK PM Boris Johnson’s Brexit-deal, if elected. The story built upon already growing confidence of a “smooth-Brexit” from the UK’s upcoming election, after polling released over the weekend suggested the Tories were well-placed for victory. The Pound proved the outperformer across the G10 currency space on Monday, to once again eye the 1.30 handle.

ASX expected to open flat this morning

The ASX200 ought to open marginally higher this morning. SPI Futures are suggesting that the benchmark index is set to add roughly 3 points at the outset of trade, following on from a day in which it shed 0.4%. There was little behind that move: activity in the market was low, even for a Monday. The broad-based declines for the ASX could probably be chalked up to a bit of profit-taking, after Friday’s equally broad-based rally drove the ASX200 to three-month highs. The trend is most certainly still skewed to the upside for Aussie equities, with 6800 arguably the key level to watch now.

RBA Minutes to be read with a critical eye

As for news in the day ahead, the local calendar will be highlighted by the release of the RBA’s latest monetary policy minutes this morning. Few surprises are expected out of the document, given traders have been flush with information from the RBA recently. At that, limiting any sort of surprises appears to be the RBA’s modus operandi at-the-moment. The central bank has stuck pretty carefully to its “gentle turning point” language recently. The core of today’s interest in the RBA’s minutes will probably be in contrasting what the RBA documented at the start of the month, with the findings of last week’s disappointing jobs market report.