Trader thoughts - the long and short of it

It was generally a challenging day for global share indices yesterday. Following a day of losses in Asian markets, courtesy of another bout of trade conflict related neurosis, kicked-off the selling, setting the stage early in the week for more equity market woes. European shares suffered consequently, unaided by a survey in the UK suggesting that the majority of corporates are pessimistic about the outcome of Brexit, causing the FTSE and DAX to fall 1.2% and 0.6%, respectively. US shares also struggled, leading to -0.3% and -0.4% for the Dow and S&P, even despite a gallant fight in the resilient tech space, which supported the tech-heavy NASDAQ sustain 0.2% gains – all at time of writing.

The ASX has closed the day lower yesterday, trading down around 0.27% to 6177. The losses were led by energy and consumer stocks: the former because of falls in the price of oil; the latter because of general concerns about the strength of the Aussie consumer, particularly in light weak ANZ Job Advertisements data and continued falls in Australian property prices. Real Estate was the bright spot for the day, adding 0.55% on the back of a general bounce following selling pressure last week, along with speculation that interest rates would remain lower for longer within the Australian economy. Overall, the day was a drab one for Aussie shares, ahead of a week that is littered with risk events; however, SPI futures are pointing to a higher ASX this morning.

The first of these major local events comes today in the form of the RBA’s monthly meeting. Governor Philip Lowe and his team have gone to great lengths of late to express the bank’s position that interest rates will remain on hold well into the future – and will do until firm signs of wage growth and inflation emerge. Hence, it’s a foregone conclusion that interest rates will be kept on hold at their record low of 1.50% today, with focus shifted to RBA’s accompanying statement. One key point –  amidst the many worth looking out for –  is whether the central bank includes any reference to ‘the next move in interest rates will likely be higher’: that statement was omitted from the RBA’s recent minutes, and was in large part responsible for the recent adjustment in domestic interest rate expectations.

Chinese markets are still showing signs of distress, right across equities and the currency space. The focus has been towards mainland China today, with the Hong Kong markets closed due to a bank-holiday. The Shanghai Composite continued to pile on the losses at the yesterday’s open, quickly dropping in excess of another 1per cent. Having recovered some of its losses at the end of last week, the SSE looks to be eyeing the 2775 level once more, thanks in large part to the release of PMI data that revealed slowing export demand. With no end in sight, the bear market in Chinese shares seems likely to get worse long before it improves.

The Chinese Yuan has been a point of fascination too for many a trader, as the currency continues its freefall. Speculation abounds in currency markets about whether this sell-off is being engineered by Chinese officials as a competitive devaluation against the USD, or whether it is a natural function of a gradually liberalizing market. The truth may exist in a combination of the two, with Chinese strategists permitting the Yuan’s fall and allowing it to destabilize capital markets. For trader’s keen on trading the situation, the 6.69 followed by the 6.73 level is now one to keep an eye out for on the USD/CNH, as markets prepare for the potential run by that pair towards 7.00.

In other currency news, the last 24 hours trade has seen interesting activity in the AUD/USD and USD/JPY. The local unit found itself gut checked this morning, following growing speculation that interest rates would remain on hold until early 2020, along with a poor ANZ Jobs Advertisements print. The AUD/USD spilled through the 0.7400 handle, to find familiar support at 0.7375, before collapsing overnight to a new low of 0.7310. It terms of the USD/JPY, the greenback resumed its upward trend versus the Yen, primarily due to an easing of risk aversion and persistent pessimism about the Japanese economy. The pair managed to pop its head above 111.00, before profit taking seemed to take hold, dragging it back toward 110.85 (at time of writing).

Commodities markets are still feeling the immense pressure of faltering global markets. Activity in commodities was again high overnight, as several stories gradually suffocate trader sentiment. Copper prices have fallen just shy of a 12-month low, tumbling -1.6% overnight, with aluminium suffering comparable losses. Oil has kept to its sell off yesterday, mostly due at this point to US President Trump’s angling for lower prices from the Saudi led OPEC. A rallying USD has pumped gold prices once more, with the yellow metal tripping -0.9% to set up a challenge of a new support level around $US1240 an ounce. While for Australian-focused punters, iron ore is showing symptoms of weakness, although elevated steel prices do seem to be supporting Dalian Iron Ore for the time being.