Trading week preview

The winners and losers

A key indicator of the feebleness in the ASX 200’s push higher is the clear lack of breadth across the Australian share-market. Activity in the ASX was predominantly underpinned by a bounce in commodity prices last week, translating into a 3.63% climb in the materials sector. The biggest gainers in the sector were the major blue-chips, with Rio Tinto, Fortescue Metals and BHP Billiton each rallying in the ballpark of 6-9%, respectively. The trading dynamic points to a lack of conviction and risk appetite amongst investors, who are trading not on corporate fundamentals but swings in sentiment and broader macro trends.

The losers in the market were easier to spot last week, with the sectoral map drenched in a sea of red. For example, a slight uplift in financials, led by strong activity in Macquarie shares, was the only other gaining sector, up by only half a per cent – indicating once more how sentiment driven the ASX 200’s performance was last week. When it comes to individual large-cap stocks, the extent of the losses across sectors meant a variety of industries were represented in the worst performers: QANTAS shed the most for the week, at 4.82%, closely followed by Origin Energy, which stripped 4.31%.

The little Aussie battler

The Australian Dollar lived up to its reputation as the risk-proxy of choice for traders during this trade war, selling off to as low as 0.7150 in the lead-up to US President Trump’s announcement of the latest round of US tariffs on Chinese goods, and bouncing off that level to rally over 2 per cent to touch as high as 0.7302 in the days following it. The rally in the AUD/USD was sufficient enough to propel the pair to the top its downward trend channel, prompting traders to fade the rally and take profit.

Though sentiment isn’t as dour as it was at the beginning of last week, the inflammation of US-China trade tensions over the weekend, coupled with the US Federal Reserve’s policy meeting on Thursday (AEST), will weigh on the Aussie, with IG traders increasing their short positions on the currency of the past 24 hours. Given perceptions of Australian fundamentals haven’t shifted in the past fortnight, the fortunes of the AUD/USD will rest on global risk appetite, as well as the affect the Fed has on USD strength this week.

The data week ahead

The local economic data calendar is light this week, a phenomenon that more-or-less extends across the Asian region. Both Japan and China enjoy bank holidays on Monday (before the Chinese go offline for a week for its Golden Week celebrations next week), with a speech scheduled for BOJ Governor Haruhiko Kuroda along with a spate of low impact Japanese data headlining the Asian calendar. The RBNZ will also meet Thursday morning, which may influence sentiment towards the Australian economy, particularly given the softening economic environment in New Zealand.

The attention of global markets will be occupied the US Federal Reserve’s meeting this Thursday (AEST), out of which a 25bp hike from the Fed is all but assured. As such, interest will be directed to the central bank’s forward guidance, for insight into the possible trajectory of future rate hikes from the Fed. Focus will be on the cooling USD, which appears liable to experience a touch of volatility as traders adjust their interest rate bets for 2019 in response to this week’s meeting. In other US related news, some degree of attention will be afforded to US fundamentals, with US GDP, Consumer Confidence and Core Durable Goods Orders data released.