Wall Street goes Goldilocks; ASX200 registers records

Bulls on parade in global financial markets

US stock indices managed to add to their record highs overnight. This time, the catalyst wasn't trade war news per re, but the release of a spate of better than expected US economic data. Bullishness reins across global markets currently. And the ASX 200 really entered the party yesterday. It climbed to its own record levels, as markets priced-in the implications of the speech RBA Governor Philip Lowe delivered on Tuesday night regarding future monetary policy. Chinese equities were the notable outlier however, falling after the release of some soft economic data. And oil prices also pulled back, after the release of US Crude Oil Inventories numbers.

US data as “Goldilocks” as one can possibly hope

The night’s trading on Wall Street was relatively thin, as US traders set-off for the Thanksgiving holiday. But nevertheless, sentiment in US financial markets remains categorically bullish. There were no real updates on the trade-war front. Instead, it was a spate of US economic data that bolstered the market’s animal spirits. US GDP, Core Durable Goods and PCE Price Index data were released, along with the US Fed’s Beige Book, and delivered as close to a Goldilocks outcome as anyone is ever likely to see. The “just-right” set of numbers saw the S&P 500 rally another 0.4% – to, of course, fresh record highs.

US growth seen to be improving, while inflation stays subdued

On the numbers themselves: US GDP data beat estimates, printing at 2.1%, over an estimate of 1.9%; US Core Durable goods also delivered a stronger than expected result; and PCE Index data came in below expectations, at 0.1%, versus the forecast 0.2%. The key takeaway here is that US economic growth remain robust; however, inflation pressures remain very subdued. As far as markets are concerned, conditions are fertile for equities going into 2020, as economic growth rebounds in the US economy, and the likelihood of future rate hikes from the US Federal Reserve remains low.

ASX200 driven to record highs, after RBA Lowe’s speech

The strong overnight lead is setting up the ASX200 for gains this morning, with the index expected to open around 20 points higher, according to SPI Futures. The rally will come off the back of a remarkably strong day for the ASX200 yesterday, which saw the benchmark index close at fresh closing-record-highs. The gains were very broad-based, too: every sector ended in the green, on a day characterized by solid activity. The climb was an interest rate driven move, as bond yields plunged across the Australian sovereign yield-curve, as traders priced-in the implications of the speech delivered by RBA Governor Philip Lowe on Tuesday night.

Market’s pricing in two more rate cuts from RBA in 2020

More specifically, financial market action in Australia yesterday was defined by the changing view that the RBA would likely be cutting interest rates twice next year, rather than just once. The information driving that dynamic was the revelation from RBA Governor Philip Lowe on Tuesday that the central bank considers its “lower-effective-bound” (that is: the level at which cutting interest rates has no further impact) at 0.25%, rather than what was the assumed 0.5%. The market now has priced in roughly 30-points of cuts from the RBA priced-in to the market now; with the consequent drop in bond yields supporting stock prices.

Chinese stocks drop on disappointing industrial profits data

Bullishness in global equity markets was wide-spread in the last 24 hours. However, there was a notable outlier. Chinese equities took a spill during Asian trade, following the release of industrial profits data, which revealed the biggest falls in that measure since 2011. The data was a little reminder that for all the optimism about lower trade barriers, the Chinese economy is still in the middle of a relatively significant slow-down. Although hope remains high that the Middle Kingdom’s economic fortunes ought to turn in time, and upside still exists for Chinese financial assets, the path to stabilisation is fraught with risk and volatility.

Oil prices pullback on US inventory numbers

Also: something of an outlier to the broader macro theme last night: oil prices fell, giving up a chunky sum of its recent gains, after the release of US Crude Oil inventory data. US oil stockpiles were shown to have bulged by 1.5m barrels last week, versus a forecast net drawdown of roughly 500k. The data killed a couple of day’s of bullishness in oil prices, as hopes grow for a turnaround in global economic activity, as well as growing signs that OPEC will extend its agreed supply cuts into 2020. Despite this, the trend for oil prices remains modestly skewed to the upside.