Relief rally takes hold as Trump announces tariff delay

Relief rallies as Trump announced tariff delays

Wall Street equities rallied, while US Treasury yields climbed, and growth-sensitive commodities lifted, as headlines flood the market that the US will delay some of the latest round of tariffs on China, to make way for trade-talks next month. The news, characteristically announced by the Trump administration just before Wall Street’s opening bell, relieved some of the bearish tension stifling sentiment presently, sparking a wave of relief rallies in global markets. So: the S&P 500 finished 1.5% higher, oil and iron ore prices spiked, gold fell back to $1500, the AUD is testing the 68-cent level again, and the ASX 200 ought to open 40-points higher this morning.

A manic market right now

Market participants are doing business in a bipolar trading environment at-the-moment. Such is the nervousness in the market, the impacts of both good news and bad have become amplified to the extreme. Headlines are loaded with extra meaning, when fear transforms into hope. That goes just as much for moves to the upside, as they do for the downside. The biggest intraday rallies in financial markets, conventional wisdom suggests, come in the most bearish of times. Whether last night’s trade-war news proves a pivot point in the short-term remains to be seen. However, the trends driving market fundamentals haven’t changed, and ought to be remembered and respected, for now.

Will Asian markets capture the euphoria?

Having registered a pretty dour performance during yesterday’s session, the bounce back in Asian markets today will be very interesting. The key metric, just in the short-term, should be whether today’s (presumed) rally recovers yesterday’s losses. That’ll give a handy gauge on sentiment. The risk is that there’s just too much going on in the Asian region itself to inspire sustainable confidence. It’s looking like a tinder-box in this corner of the planet. Economic data is underwhelming investors, as China’s monthly data dump comes into focus tomorrow. And the situation in Hong Kong is getting scary, with reports now Chinese military personnel are building at the country’s border as protests in the city rage-on.

Another injury to the global economy

A new wound opened for the global economy during Asian trade yesterday, too. Singapore GDP data was released, and showed a larger than expected slow-down in economic growth in the second quarter. The print adds to the slew of weak GDP figures recently released across the globe, and comes hot-on-the-heels of Friday’s contractionary UK GDP print. Singapore’s growth numbers came with a particular sting, however. The small, international trade-sensitive economy is considered one of the “canaries- in-the-coal mine” for the global economic outlook. At a time where fundamentals are deteriorating, yesterday’s Singaporean GDP print fuelled fears that the global economy is heading toward recession.

US CPI comes in hot, but doesn’t change the equation too much

The highest impact data release in European and North American trade was US CPI data last night, and perhaps to the chagrin of market bulls, came in a little hotter than expected. The data revealed price growth of 2.2% for the US economy in the past 12 months – a skerrick higher than the 2.1% estimate. It curbed the excitement for a potential 50 basis point cut from the Fed next month, and cast a little doubt on how aggressive the Fed can be cutting rates this cycle. Ultimately, though, the outlook has only marginally changed: the inflation outlook is still poor, and aggressive Fed cuts is still baked-in to market prices.

Attention to turn to Aussie workers’ pay today

The day ahead, at least for local markets, will be highlighted by quarterly wage growth data. No exception to the epidemic affecting developed economies globally, growth in worker pay has been troublingly low, and trending lower, in Australia for nearly a decade. This comes despite nominal improvements in the jobs market in recent years, and up until quite recently, trend-level GDP growth. The ABS data today is expected to reveal steady wages growth in the past quarter, of 2.3% on annualized basis – another signal of the stubborn spare capacity in the labour market that the RBA deplores so much.

Wage data and the RBA’s next move

A miss in wage numbers today will only add weight to calls that the RBA needs to cut rates again – and may need to do so as soon as next month. The central bank, by its own admission, sees little chance that the labour market will tighten sufficiently to drive the kind of growth in wages that will support future economic growth, and inflation in the Australian economy. So, as is widely spoken-of, the question is a matter of when, and not if, the RBA cuts again. As it stands leading into today’s data, and tomorrow’s monthly jobs figures, there is a fifty-fifty chance the RBA moves next month.