Conflicting trade-war news sends markets swinging

Sentiment swings as speculation about trade-talks heightens

Bullish sentiment was stoked on news overnight that the US and China are planning to remove tariffs as a part of any “phase one” trade deal. Though contradicted this morning, that news saw a general rally in risk-assets in Wall Street trade, with the S&P 500 briefly hitting new record highs. That’s setting up the Australia 200 for a marginally positive open today. The Australian Dollar has also been a beneficiary of greater hopes about the trade-war, ahead of a day highlighted by the release of the RBA’s Statement of Monetary Policy. And in other news overnight: the Bank of England met, and delivered what’s being considered a “dovish-hold” decision.

The latest trade-talk sticking point: the removal of tariffs

Risk assets soared last night after reports broke that the US and China will move to progressively roll-back tariffs on one another’s economy as a part of any “phase one” trade deal. Though the report’s veracity has been called into question this morning, with Reuters reporting that the White House is pushing back on such a policy, traders have taken the news as being indicative of another small step forward in trade-negotiations. It could all prove a case of swings and roundabouts. However, judging by the price action, risk seems to be skewed towards a trade-deal being struck, and tariffs eventually lowered.

Risk appetite remains high, as global growth outlook improves

The evident swings in sentiment as trade-war headline after trade-war headline roll through the market may be what traders just have to get used to for the next month-or-so, as the details of a trade-deal between the US and China are nutted out. Nevertheless, with risk seen skewed to the upside still, the S&P 500 leapt to record highs last night. US Treasury yields spiked, putting one nail in the coffin of their downtrend this year. And the rally in bond yields (globally) sparked a tumble in gold prices; while Brent Crude climbed 0.6%.

ASX to climb this morning, following sold day’s trade

The ASX200 is set-up for a positive open this morning too, with SPI Futures indicating the index will open around 10 points higher this morning. The move will back-up what was a robust day’s trade yesterday, in which the ASX200 added 1.00%, lead by a recovery in bank stocks, following National Australia Bank Ltd slightly better than expected results. The gains were broad-based however, with every sector bar the energy sector gaining for the day. The ASX200 finally conquered the troublesome 6700 level too, as trader’s now eye technical resistance at the 6775 – a level that approximately marks the highs of both October and September.

Australian Dollar lifts, and looks to challenge key levels

Also: on the cusp of challenging some significant price-milestones is the Australian Dollar. It – along with the Norwegian Kroner – topped the G10 currency map yesterday, as traders become increasingly bullish on the Aussie Dollar, amidst the improving outlook for the global economy. The AUD/USD stares down, once again, its 200-day exponential-moving-average: something that’s been a very stubborn point of resistance for the pair since it began its downtrend in early 2018. The 200-day EMA now sits just shy of the 0.6950 level – and if breached, could conceivably open a rally in the AUD/USD back towards, and perhaps above, the 70-cent handle.

RBA Statement of Monetary Policy highlights calendar

Such a move rests in part in what comes from the RBA in coming months – some insight of which will be revealed today. The RBA releases its quarterly Statement of Monetary Policy, with many in the market expecting that the document may reveal a slight downgrade in the RBA’s growth and inflation forecasts, despite the RBA recently imploring that the economy is at a “gentle turning point”. Lately, traders have walked back expectations of imminent interest rate cuts from the RBA based on that language, with the odds of a rate cut in the next 12 months considered a toss of the coin.

Bank of England delivers a “dovish-hold”

In other overnight news, the BOE kept interest rates steady at 0.75%, however, for the first time since mid-2018, the decision wasn’t a categorical one: the voting members of the central bank were divided 7-2, with those two dissenters voting for a rate cut overnight. At that, the BOE struck a far less optimistic tone than in the past about the UK economy, conveying a great level concern about the impact Brexit is having upon it. The odds of a rate cut from the BOE next year is back to fifty-fifty, and that saw the Pound drop into the low 1.28 handle overnight.