A mixed day in global financial markets

A mixed 24-hours for markets

Sentiment was mixed overnight. Brexit is the top priority for market participants at-the-moment, and it’s causing equal parts hopes and confusion. US earnings season is picking-up steam, with the reports received during the Wall Street session judged to be generally positive. US economic data disappointed, however, and raised concerns about the strength of the US consumer. That’s lead to a great chance of a Fed cut at the end of this month. The trade-war took an interesting turn, after the US Congress passed a series of pro-Hong Kong legislation into law. While in the day ahead, local investors will have all eyes on Australian jobs data.

Traders still jumping at Brexit headlines

Such is the opacity of current Brexit talks, traders are extra jumpy when it comes to any news that may confirm or deny the existence of a new Brexit-deal. The Pound chopped around in a 1.5% range, on some conflicting reports overnight. The first piece of news dulled the markets enthusiasm, after the EU suggested that only could a deal be done if the UK compromises on Irish back stop first. The second piece of news, however, has proven more consequential, on rumours, since denied by the Party, that the DUP may be willing to accept the terms UK PM Johnsons new Brexit-deal.

US earnings season delivering a little sugar

The view a Brexit-accord will be struck at the death-knell is doing its bit to support risk appetite. Another positive-enough day in US earnings season also bolstered sentiment slightly, as Bank of America reported, and broadly beat expectations, adding to the positive results delivered by a handful of major US banks on Tuesday. In all, the S&P 500 has failed to mount another challenge of the 3000 level today, dipping just shy of 0.2%. This tepid lead is setting up the ASX 200 for its own lukewarm start to trade this morning, with SPI Futures pointing to an 8-point drop for the market at the open.

US Retail Sales disappoints

Undermining sentiment during North American trade, was the release of Retail Sales data, which revealed a much weaker set of numbers than forecast. Core Retail Sales contracted -0.1% last month, versus a consensus estimate of 0.2% growth. The weak result has fuelled fears slightly that the weakness evident in business conditions in the US economy is beginning to show up in consumer behaviour. It’s forced traders to up there bets of a rate cut from the US Fed at the end of this month. The probability of another US rate cut this is currently sitting at roughly 86 per cent.

Fed beige book adds to rate-cut calls

The argument the Fed will be cutting rates again this month was only reaffirmed by the release of the US Fed’s beige book last night. The Fed cast a slightly cautious tone in the document, suggesting that business activity is weakening in the economy, and that overall economic growth has slowed to a “slight to modest pace”. The central bank once again put the sluggishness back onto the trade-war and the subsequent uncertainty it’s caused. The Fed did, however, maintain its confidence that the US economic expansion ought to continue, underpinned by “solid household spending”.

US House of Reps. attracts Chinese ire

Matters pertaining to the trade-war became a little curly yesterday, and catalysed somewhat of a pullback in risk assets, temporarily. China vowed to retaliate to the US House of Representatives decision to pass several laws requiring the US to review annually its relationship with the city, and whether it is sufficiently independent from Beijing. Though its likely China will keep its fights with the US executive and US legislature separate, there is the growing fear in the market currently that the situation in Hong Kong could soon become conflated with US-China trade-policy. Such a situation would only complicate trade-negotiations already fraught with complexity.

Jobs data to headline day’s trade

Local trade will be headlined by local labour market data today. The economy is expected to have added 15k jobs last month, with the unemployment rate forecast to remain steady at 5.3%. The jobs market remains at the centre of the RBA’s monetary policy considerations currently. In it’s minutes released on Tuesday, the RBA warned that conditions in the labour market had softened, and that it expected the pace of jobs growth to slow. Extra slack in the economy will likely necessitate, by the RBA’s own admission, the need for further rate cuts, with the market expecting the next one to come in December.