Trade sentiment stabilised somewhat on Tuesday, with US stocks bouncing from Monday’s selloff after China stepped in to alleviate the pressure on the Yuan. The S+P/DJI/Nasdaq all ended up by 1.2%/1.3%, while the DXY also recovered, with the dollar rebounding strongly against the Jpy although it ended the session mixed/choppy against the EU majors and the commodity currencies. Whether this recovery continues is questionable given that the US and China are both increasing their aggressive trade-war related rhetoric against each other, and with the medium/long term charts beginning to point lower, the stock markets do not suggest that the longer term rally is set to resume. This seems to be backed up by the bond markets, where yields saw little relief and remain under pressure, with the US10Y now down to 1.7% and with German 10-year yield hitting a new record low of -0.541%, as global trade concerns continue to grow. Gold remained volatile, trading a $20 range above 1255, but ended near its highs on the back of ongoing safe-haven demand, while WTI fell by almost 3%, as the trade war threatens to expand into a currency war, increasing traders concerns about the damage to crude demand, which provoked the sharp selloff.
Looking ahead, Wednesday gets under way with the Australian AIG Performance of Construction Index for July and the Australian Home Loans (exp +0.6%), but the main event of the session will be the RBNZ Meeting at which the Bank are widely expected to cut rates by 25bp, to 1.25%. This will be followed by the Statement/Press Conference, at which a dovish outlook is most likely given the current global trade situation, which should keep the downside pressure on the Kiwi. The key to the market reaction will be the strength of the Bank’s guidance about further easing. Beyond that, it will be a mostly thin session with just the German Industrial Production, US Consumer Credit Change and the EIA Crude Oil Stocks Weekly Change to provide any directional bias, and traders will be paying more attention to the POTUS Twitter Account/Chinese statements for the next installment on global trade and currency policies.
Economic data highlights will include:
Wed: AIG Performance of Construction Index, RBNZ Interest Rate Decision/Statement/Press Conference, Australian Home Loans, German Industrial Production, US Consumer Credit Change, EIA Crude Oil Stocks Weekly Change,
Market moves, in brief:
FX: DXY 97.60 (+0.20%)
Bonds: US10Y; 1.71% (-0.28%), German 10Y; -0.535% (-4.33%), UK 10Y; 0.516% (+2.34%), Australian 10Y; 1.05% (+2.98%), NZ 10Y; 1.31% (-0.31 %), China 10Y; 3.121% (-0.31%)
Stock Indices: DJI; +1.21%, S+P; +1.30%, NASDAQ; +1.39%, EUStoxx50; -0.58%, FTSE100; -0.72%, Shanghai Composite; -1.60%,
Metals: Gold $1474 oz (+0.70%), Silver $16.44 oz (+0.29%), Copper $2.5575 lb (+0.53%), Iron Ore $99.50 per tonne (NYMEX) (-0.83%),
Oil: WTI $53.43 pb (-2.82%)
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