It was another mixed day for the financial markets yesterday with global stocks coming out marginally better off overall mainly driven by what has so far been a good earnings season. Once again we had conflicting comments from the US on trade talks with China, Secretary of Commerce Wilbur Ross saying that the two superpowers are “miles and miles” apart on trade and the White Houses Larry Kudlow advising the President Trump is optimistic about trade discussions. The US government shut down looks set to drag on as the Senate failed to pass two separate proposals as expected. The ECB kept rates on hold as was widely expected and the Euro dropped later in the day on reports that the German government has cut its growth forecast. The dollar gained across the majors with the Dxy trading back up through 96.50 and sterling notably remained above 1.3000 whilst the market waits for the next development on Brexit.
Australian employment data came out slightly better than expected yesterday with the unemployment rate dropping 0.1% helping the Aussie to gain back some ground on the initial knee jerk reaction, however the devil is in the detail and the full time number was worse than expected and this helped to restrict the move. Later in the session, NAB raised interest rates and this led to a significant sell off in the currency as the market concluded that the next move from the RBA may be a cut now rather than the previously expected hike. The Aussie is expected to remain a sell on rallies for the short term as global uncertainty and now domestic factors weigh on it.
Global financial markets continue to crave certainty on a number of issues and are still finding trends hard to come by as they are pushed and pulled in either direction on an almost daily basis. The US government shut down will start to have some significant economic consequences if allowed to continue for much longer and the lack of detail from either side on the US-China trade situation continues to add caution to an already nervous market. Brexit also looks set to keep traders on their toes and although we’re hearing the right noises in terms of most parties desire to see a deal, it still feels like agreeable terms for all sides are a long way off.
Looking ahead to todays trading and it’s very quiet in terms of fundamental economic data throughout the sessions so expect investor sentiment to once again dictate flows and market direction. The WEF Annual meeting continues in Davos and comments will continue to come from there although expect little to affect short term direction.