ASX200 to climb, despite a soft lead from Wall Street

A mild start to the trading week

Stocks on Wall Street have swung in and out of positive territory overnight, as traders prepare for a week centred upon trade negotiations between the US and China. Typically, market sentiment is moving from headline to headline, with market participants receiving a dose of good news and bad news yesterday. Implied volatility remains relatively elevated for now, and that’s largely keeping risk taking contained. The ASX 200 bounced yesterday, and is positioned to continue that move this morning. It’s going to be another day bereft of high-impact event-risk, both locally and abroad. Business Confidence data is released locally this morning and heads the economic calendar.

Wall Street stocks dip, European stocks rally, Asian stocks mixed

It was a very quiet day throughout global equity markets, yesterday. Volumes were very light, and meaningful, new information was sparing. This was particularly true of markets in the Asian region, with Chinese and Hong Kong markets offline, and of course, the ASX trading with practically half the country on a public-holiday. European markets managed to score a bullish day’s trade, capturing the end of the tailwind generated by Friday night’s “Goldilocks” US jobs data. But Wall Street has failed to add to its Friday gains, faltering at the key 2950 level once again, throwing into question the US stock market’s capacity for upside, for now.

Trade-war headlines dictating terms of trade

Market sentiment swung on trade-war headlines yesterday. There was little lasting consequence to them, but the day’s trade was somewhat of a vacuum, so some information had to fill the airways. The first headline came early in Asian trade, and undermined sentiment, with reports that China had narrowed considerably the list of parameters it was willing to talk about at trade-talks in Washington this week. The second head line was more positive in nature, and gave risk appetite a little boost, after Trump economic adviser, Larry Kudlow, stated that the White House is not considering banning Chinese companies from listing on US stock exchanges.

VIX says risk appetite to remain contained

As far as sentiment in the market goes, broadly speaking, market participants remain in a state of caution. It figures: the uncertainty and anticipation leading into US-China trade-talks this week will inevitably have that effect. The VIX, while not remarkably high, and at that, lower than where it was last week, is still trading at a level that isn’t conducive to upside in stock markets. It’s presently priced at a skerrick below 18 – above the circa 16 level that often divides risk-on and risk-off activity. It suggests that this might be a sluggish week for risk assets if “fear” in the market remains at these levels.

ASX200 to open higher this morning

The ASX 200 will probably end up sucked-into this dynamic too, given how macro-driven, and therefore relatively correlated, moves between global markets have been recently. Yesterday was a solid day’s trade for Australian stocks – though activity, because of public-holidays across the country, was very thin. Volumes were 60% below the monthly average. Yield sensitive, and growth sensitive stocks outperformed, with the IT and healthcare stocks topping the sectoral map in Monday’s trade. Today should give a better reading on market sentiment within the ASX200. As it presently stands, futures markets are suggesting that the index ought to open roughly 30 points higher.

Business confidence data tops the calendar

High-impact event-risk will be very sparing for Australian markets this week. The economic calendar is highlighted by some second-tier sentiment readings. Today, it will be about the NAB Business Confidence survey. As has been characteristic for business across the global economy, Australian businesses, according to recent confidence surveys, are growing less-optimistic about the future. The last survey revealed a confidence reading of “1”, denoting that optimists only marginally outweigh the pessimists in the Australian business community. The trend has been to the downside in this data point, too. Hence, the risk today is that confidence goes into negative territory, and confirms an overarching pessimism in the business sector.

Local business following the global trend

Business conditions are deteriorating across the globe, and policymakers would be loath to see the Australian economy follow this trend. Given the current state of the global economy, the tide will be hard to fight. Afterall, as has been conveyed repeatedly in recent months, high political uncertainty and increased trade barriers is stopping businesses from investing right now. It comes back to central bankers essential problem in this environment. Rates are being cut to spur animal spirits, and re-invigorate global growth. However, cheapening capital will be of little consequence if the confidence doesn’t exist to put that capital to work.