Markets making no sudden moves ahead of high impact end to trading week

Markets tread water ahead of busy end to week

As traders enter a stacked back-end of the week, risk-taking has been kept to a minimum. A series of factors balanced sentiment overnight. But the best explanation for lukewarm European and North American sessions is that the market is staring down the barrel of a big few days. Most pertinently: tonight, US GDP is released, and the US Fed meeting is held. The prepositioning for major risk-events will manifest in the ASX200 this morning, ahead of a day highlighted by local CPI data. Brexit is also an unfolding concern: it looks as though the UK will be heading to the polls in December.

US stocks hold near record highs

The S&P500 has traded more-or-less flat overnight, sitting comfortably enough around all time highs. With the end of the month looming, and event-risk high in coming days, traders are happy to sit on the sidelines while the next 24 hours plays out. On balance, the bad news possibly outweighed the good for US equities yesterday, following Google’s disappointing Q3 results, and some news reports that the US and China may not reach a “partial” trade deal by next month. That saw the US tech sector lead losses for Wall Street stocks, with the NASDAQ down nearly half-a-per-cent during North American trade.

US economic fundamentals under the microscope

It almost entirely becomes about the US Federal Reserve and US economic growth in the next 24 hours. The Fed meet, and are expected to cut rates once again; and US GDP is published, and is expected to show the US economy grew at an underwhelming 1.6% in the last year. The key focus around these major events will be inferring what may be in store in the future for the US economy. Fundamentally: has the tangible slowdown in the US economy reached something of a turning point? Will the Fed, as is expected, start signalling an end to this rate cutting cycle?

A day fraught with risk; the ASX to dip

Quite likely, tonight’s trade will be like walking a tight rope for market participants. In the meantime, there’s limited appetite for risk. That’ll manifest across the ASX200 this morning, with SPI Futures suggesting that the index will shed around 20 basis points this morning. It’s been a middling week for Australian stocks so far. The market has failed on successive day’s to capitalize on strong Wall Street leads, rallying at the open both Monday and yesterday, only to sell-off later in the day. Today’s trade probably won’t even see that, as traders move to safety to position for tonight’s event risks.

Inflation data to preface next week’s RBA decision

The local calendar has its own share of high impact news, however. The Aussie economy will be in focus, as the ABS releases CPI data this morning. The data is expected to show a slight uptick in inflation last quarter, to 1.7% year-over-year. Though remaining below the RBA’s target, it probably won’t shift the dial for the RBA as it gears-up for its meeting next week. Reaffirmed in a speech delivered last night, traders are internalizing the Governor Philip Lowe’s “gentle turning point” rhetoric about domestic growth. That hawkishness, as well as improvements in global outlook, has seen expectations for further RBA cuts tumble in recent weeks.

The UK likely to head to the polls in December

Brexit news was of significance again last night, though it failed to push market pricing around in any meaningful way. The Brits are going to a General Election, likely in December – though the exact day is being squabbled over – after UK Opposition Leader, Jeremy Corbyn, stated his Labour Party would support a law that would bring about a poll. In what will be a proxy-vote on Brexit, betting markets currently have the Johnson Government retaining power in any election. Though already priced-in such an outcome is being welcomed by Pound traders. A Tory election win brings the market one step closer to ending Brexit uncertainty.

And the other big events

Several other events are worth noting in the next 3 days. The Bank of Canada meet tonight, and are expected to keep interest rates on hold. The Bank of Japan also meet during tomorrow’s Asian session, and are forecast to signal some measure of new policy intervention. US Crude Oil inventories data will print tonight, and will come as oil struggles to join the current risk-rally. The primary interest will remain in US economic fundamentals, though. US inflation numbers come out on Thursday, before traders attention shifts to very significant US jobs numbers, and the latest ISM Manufacturing PMI release.