Stocks flat, bonds pull-back, currencies shuffle, and Bitcoin rallies

Overnight action

Wall Street equities closed effectively flat, while bond yields climbed, commodities generally lifted, and currency markets shuffled into place, as markets continue to position for this week’s massive G20 meeting in Osaka. Market activity was relatively high, and sentiment does seem to be balancing on a knife’s edge: US President Trump flippantly suggested his “Plan B” from this weekend’s trade-talks is to slap on China “billions and billions” of more tariffs. Meanwhile, bond markets continued unwind bets of a double-rate-cut from the Fed next month, after some sobering commentary from several Fed-speakers this week, driving US Treasury yields up around 6-points across the curve.

FICCC: Fixed-Income, Currencies, Commodities and Crypto

The price action in bond markets could also be attributable a swift-rally in oil prices last night, consequent to the release of US Crude Oil inventory data, which showed a much bigger than expected drawdown last week. That dynamic has sustained the retracement in gold prices, as inflation and central-bank-easing worries diminish. For all the shuffling in bonds and stocks, in currencies: growth currencies like the CAD, NZD and AUD are higher, mostly at the expense of the JPY and CHF. And Bitcoin is going on a tear, breaking through $US13,000 overnight – though tumbling in early trade this morning as choppiness sets into that market.

ASX200 consolidates

The ASX 200 continued to trade sideways during yesterday’s session, as the market shows signs of slowing upside momentum, and a touch of consolidation. It was a high activity day, which saw the ASX 200 shed -0.26%, again due primarily to a dip in bank shares, which lopped 9-points from the index. Much like the position it was in last week, price action points to a market not yet ready to retrace its recent gains. Instead, it’s trading more or less side-ways, if not with a slight bearish bias, as traders position for the many unknowns awaiting them at this weekend’s G20 meeting.

RBNZ keeps rates on hold

The Reserve Bank of New Zealand met yesterday, and kept interest rates on hold at 1.50%, as was generally tipped. Naturally, the focus shifted to the RBNZ’s accompanying statement, following the publishing of the decision. And what was revealed cast the central bank’s decision in a light that could be described as a “dovish-hold”. The communication to the market was plain and simple: “The Official Cash Rate (OCR) remains at 1.5%. Given the weaker global economic outlook and the risk of ongoing subdued domestic growth, a lower OCR may be needed over time to continue to meet our objectives.”

RBNZ to play it by ear

Despite the tone struck by the RBNZ, the Kiwi Dollar lifted somewhat, and rate-cut expectations were slightly unwound, following yesterday’s rates-decision. It would seem the market read what was stated by the bank as being a trifle ambiguous: yes, interest rate cuts are likely needed to support the New Zealand economy in the near-enough future, but when that happens precisely remains uncertain. An August rate cut from the RBNZ is still considered likely, it must be said. But the probabilities have been diminished, with future employment and inflation figures – the indicators the RBNZ flagged as facing downside risks – now taking on greater significance.

US GDP data

The economic calendar today will be highlighted by the Final US GDP print for the quarter. It’s the last revision to the US growth data for the quarter, so already, in the market there is a fairly good feel for what the numbers may reveal. It’s expected to come-in at what is quite a robust 3.1% – above trend, in line with the preliminary estimate, and only down 0.1% from last quarter. Naturally, the minutiae is what market participants will be perusing, to get a feel on the trends evolving in the US economy – especially given its assumed slow down.

The Fed is treading carefully

The implications for markets from tonight’s US growth figures will, of course, begin with what it says about the US Federal Reserve’s monetary policy considerations. Right now, interest rate markets are implying a relatively high chance that the Fed will pull-out a big 50-point rate cut at that central banks July 31st meeting. The consequences of that have been huge: it’s pushed financial capital into stock markets, tighten credit spreads, and whacked the USD down. And that’s seemingly captured the Fed’s attention, too, with several Fed-speakers this week moving to deftly temper these expectations, given their impact on financial markets.