A settled start to the week, as traders await fresh trade-war news

Risk pulls back slightly to kick off the week

A Stock indices traded flat-to-lower overall yesterday, as a lack of trade-war news, coupled with some holiday thinned trading, contributed to a relatively low-impact day in global markets. Sentiment was dented in Asian trade by fresh escalations in the violent protests in Hong Kong, which saw that region’s equity market tumble. The Pound climbed in European trade, after some notionally positive Brexit developments, and UK GDP data that allayed fears of a UK recession. The overnight lead is setting the ASX 200 for a small gain this morning, rolling-off a solid day’s trade on Monday, and ahead of a day highlighted by the NAB Business Confidence survey.

Thin trade leads to neutral day’s trade for stocks

Trading in financial markets was quite thin overnight, courtesy of the Veteran’s Day holiday. US Treasury trading was closed, and volumes in US stock markets were 20% below the 30-day average. The S&P500 dipped slightly, perhaps as optimism cools about the prospect of a trade-deal. But more fundamentally, market participants are simply awaiting fresh trade-war developments before either diving further into equities, or pocketing a bit of profit. Which one things go in the short-term is certainly becoming a touch ambiguous, as it becomes less likely China will get their wish to see an unwinding of existing tariffs.

Escalation of violence in Hong Kong shocks traders

If it had to be called, it was perhaps a, by-and-large, a risk-off day in global markets. The crucial story came out of Hong Kong, where clashes between police and protesters took an increasingly heated and violent turn, after a police officer shot two protesters yesterday during demonstrations. Obviously leaving the all-important moral and social concerns aside, the developments further entrench the internal conflicts crippling civil society in Hong Kong, and suffocating its economy. The news sent the Hang Seng tumbling nearly 2-and-a-half per cent, as traders priced-in a greater risk-premium into Hong Kong equities – and even the small potential of global-contagion risk from the events.

The path to Brexit opens a little wider

The high impact news was reserved for the UK economy and financial markets last night. The Pound recovered recently lost ground, after reports broke to the market that Brexit-provocateur, Nigel Farage, would be pulling 317 Brexit Party candidates from this December’s General Election. The move is seen as a strategic play by Farage to open-a-lane for UK Conservative Party to more easily seize a majority at the election, and receive the mandate necessary to “get Brexit done”. The GBP/USD leapt 0.6% off-the-back of the news, to trade back within the 1.28 handle once again, as trader’s position for a January 2020 Brexit.

UK avoids technical recession last quarter

The Brexit news was perhaps not the only development to fuel trader sentiment regarding the UK’s economic prospects. The nation’s quarterly GDP figures were released last night, and though it missed expectations slightly, printing at 0.3% versus a forecast 0.4%, it managed to confirm the UK avoided a technical recession last quarter. Although this fact clearly hasn’t shifted the outlook for economic fundamentals in the UK at all – with Brexit the key determinant of that still – it did prompt a minor unwinding of bets that the Bank of England will cut rates in 2020. Currently, a BOE cut in 2020 is considered a roughly 46% chance.

ASX200 ought to open higher this morning

Even in light of what’s a soft lead from European and Wall Street financial markets, the ASX200 is expected open a higher this morning. SPI Futures are pointing to an 8-point jump for the index. It’ll add to the broad-based 0.7% rally the ASX200 put in yesterday, that put the index just shy of the key technical resistance level of 6775. Today’s trade ought to see that mark breached today, with the test to be whether it can close above it by the end of the day’s trade. If that proves so, it opens technical upside for the ASX200 to challenge fresh record-highs.

Business confidence to test policymaker success

The data docket is quite light in the next 24 hours. Locally, the interest will be in NAB Business Confidence data released this morning, for a bit of a read on the state of animal spirits in the Australian economy. Both business confidence, and business conditions, have been shown to have been in a steady state of decline in the economy over several years. Though the data ought not shift market pricing too considerably, it will give another small insight into whether recent attempts by policymakers to stimulate economic activity in Australia are beginning to gain some level of traction.