Sentiment flips in markets: Are trade-talks still on?

Are trade-talks still progressing?

Market volatility eased last night, after US President Donald Trump and his administration talked-up trade-talk progress. That saw risk being popped back on the table during overnight trade, and it’s setting up the ASX for a rally this morning. Brexit developments also stoked the market’s animal spirits, as polling showed the UK Conservative Party extending its lead in the UK election race. The Bank of Canada met, and delivered a pretty upbeat, “hawkish-hold”. Oil prices climbed after the US crude oil inventories report, and ahead of this week’s OPEC meeting. And in the day ahead, all eyes will be on local Retail Sales data.

Sentiment flips and volatility drops

Sentiment flipped last night, as the tone of trade-war news changed once again. Reports flowed from Bloomberg in early European trade, citing negotiations close to trade-talks, that trade-negotiations continue to progress well, and that a trade deal is still possible before tariffs are scheduled to be hiked again in 2020. The reports were somewhat supported by US President Donald Trump last night, who in a press-conference, stated trade-talks are going “very well”. Fear turned to hope, at least on the surface of things, off the back of the news, with the VIX falling back to the 14 mark, and risk assets generally climbing.

Stocks recover ground, ASX ought to jump

Stock markets recovered as-a-result overnight, setting up the ASX 200 for a robust 50-point rally at today’s open. The question for traders this week has been whether the sell-off in equity markets was simply a pullback in prices, driven by a shift in sentiment, or whether a bigger turnaround was in play, based-on deep-rooted concerns about economic fundamentals. The balance of opinion has shifted to the latter. That is: with valuations having become rich, and sentiment clearly imbalanced, the market needed this little shake-out. Of course, everything still hinges on the US and China remaining friendly. But for now, traders are feeling more confident that everything is still okay.

Brexit news also supports risk appetite

So: markets wait-and-see, and keep watch on that December 15 “deadline”. Outside of US-China trade-talks, though: and markets were given a small reason to be cheerful, as the most recent UK election polling showed the British Conservative Party has extended its election lead. The poll has boosted hopes that the Tories will win a majority government at next week’s election, and with it, a mandate to pass their Brexit withdrawal-agreement by the end of January. The news, coupled with a weaker Dollar, propelled the Pound higher last night, trading into the 1.30 as of this morning – and to levels not seen since May 2017.

Bank of Canada talks up global growth outlook

Another key event drove volatility in the FX space overnight: the Bank of Canada met, and delivered to the market what’s being called a “hawkish-hold”. The Canadian Dollar was sent surging after the decision, leading the gains for the G10 currency space last night. The BOC’s decision had broader implications for markets, though. The central bank was very upbeat in its assessment of the global economic outlook, stating it sees the global economy “stabilizing”. It adds to the list of central bankers talking up improvements in global growth conditions, implying that 2019’s synchronized reduction of interest rates may have reached its end point.

US oil spikes, as OPEC meets in days ahead

The Canadian Dollar had another reason to rally yesterday. Oil prices spiked, after US Crude Oil Inventories data showed a much bigger than expected drawdown in crude inventories last week. Inventories fell by -4.9m barrels, versus a forecast -1.6m, driving the oil price up roughly 4% in North American trade. The rally sets up a crucial couple of days for oil markets, now. OPEC kicks-off its meeting in Austria today. Confusion still reigns as to whether the cartel will cut production, or not, to account for a global weakening of oil demand. If it does, then further upside for oil prices is all but assured.

Retail Sales data tops calendar, after yesterday’s GDP

Local interest turns to retail sales data this morning. It follows yesterday’s GDP print, which judging by the AUD's dip after its release, missed market expectations. The key point: though printing at 1.7% year-over-year, as expected, the quarterly number missed forecasts, at 0.4% . That showed a decline in growth from the previous quarter, and cast doubt of the notion put forward by the RBA that the economy is at a “gentle turning point”. Odds of a rate cut from the RBA next year have been boosted, with the market giving a 60% chance of a February cut.