Signs of momentum in trade-talks boost stocks

Stocks climb on trade optimism

Stock indices across the globe renewed their run higher yesterday, as more “good” news feeds into the narrative that the US and China are making their way to a trade deal. The S&P 500 touched fresh record highs, and that’s setting up the ASX 200 for a solid open this morning. It was an otherwise light data-data day for global markets. The Hang Seng outperformed as investors digested trade-news, as well as the administrative region’s election results. And in the day ahead now, attention locally and abroad will turn to some central bank speak, with US Fed Chair Jerome Powell and RBA Governor Philip Lowe delivering speeches.

Signs of further momentum in trade talks

The latest cause for optimism regarding the trade-war in global markets was news that the Chinese will be moving to tighten up its intellectual property laws, effectively at the behest of the United States. Intellectual property theft has featured as a prominent sticking-point throughout trade-talks. China’s willingness to concede some ground on the issue, and implement some level of reform to address it, is considered a meaningful sign that compromise is possible between the US and China. It lifts, in the mind of the market, the chances a broader trade deal can be struck, and ease trade pressures on the global economy.

US stocks touch fresh record highs

It was a sea of green for global equity indices yesterday, largely by virtue of this news – along with, of course, US President Donald Trump’s assurances that a trade-deal remains “potentially very close”. The S&P500 has rallied over half-a-per-cent during North American trade, to trade, once again, at fresh record highs. The sectors of the US stock market highly exposes to trade-talks, and the issue of intellectual property itself, outperformed last night. Tech stocks, in particular, have topped the table, with the NASDAQ climbing roughly 1.2%, to trade at its own all-time highs, and in a day of remarkably high activity trade.

ASX expected to open higher

The positive lead handed to it from Wall Street is setting up the ASX200 for a solid 25 point gain this morning, according to SPI Futures. It comes off the back of a day that saw the ASX edge higher, in another relatively broad-based rally. Cyclical sectors, along with growth-stocks in the technology and biotechnology space, lead the market higher, as Aussie investors put more risk back on the table. The notable laggard for the market yesterday was again the financial sector, as investors continue to weigh the implications of Westpac’s anti-money-laundering breach on the banking sector – and at that, the broader ASX.

The Hang Seng’s relief rally

In terms of the outperformer across global stock indices yesterday, the Hang Seng managed to lead the pack. Underpinned by greater trade-optimism on the one hand, Hong Kong stocks possessed an extra catalyst for a rally in Monday’s trade, after the weekend’s elections in the administrative council passed without a major escalation in street violence. The Hang Seng itself looks itching to make a break-higher, at least as soon as global trade-tensions and its own civil unrest de-escalates. Valuations appear relatively attractive, historical correlations with other indices have temporarily diverged, and price action for the index is showing a modest short-term uptrend.

US Fed Chair highlights today’s calendar

As for the day ahead, focus will turn to central bank speak. The first, and most significant event, will be a speech to be delivered by US Federal Reserve Chairperson Jerome Powell, entitled “"Building on the Gains from the Long Expansion". The name likely says it all: this is the Fed head’s chance to build the case that the US economy remains in what he’s dubbed “mid-cycle”; and that, although downside risks remain prevalent, the US economic outlook is positive. The logical extension of this idea is that US interest rates will remain on hold for now, as the Fed awaits a growth rebound.

RBA Governor Lowe to talk unconventional policy

The next big central bank speech comes from our own Governor Philip Lowe. And from an intellectual perspective, the speech probably carries greater importance. “Unconventional Monetary Policy: Some Lessons from Overseas" is the topic of conversation, and although it isn’t expected to provide any real policy prescription, it will be used to build a mental-model of what shape a potential quantitative easing program in Australia may take. Afterall, the RBA is approaching its effective lower bound in its standard interest rate policy, so its considered almost the prevailing view that eventually, the RBA will need to embark on its own journey into the realms of “unconventional” monetary policy.