We saw a bit of consolidation at recent levels across the financial markets yesterday as the market took advantage of holidays in the US and Canada to have a breather before it gets stuck into a heavy event risk week. Equity markets had a mixed day and the dollar traded in a relatively tight range with the Dxy struggling to break out of a tight 95.00/20 range. Sterling remained under pressure as Brexit concerns continued to weigh and the Aussie managed a small bounce despite a poor Retail Sales print.
Concern remains high in the emerging markets space as we move into a more active trading day with a focus still strongly on Argentina and Turkey, but investors are conscious that weakness could spill to other currencies, many of which still sit at vulnerable levels. Sentiment look set to continue to dominate direction, however we do start to see some serious fundamental risk events as we move through the week and these could supersede sentiment flow if we see some serious variation from expectation.
In the Asian session today we have the first central bank rate announcement of the month from the RBA. It would be easier to find a golden ticket to Willy Wonkers Chocolate factory than an economist who thinks that we’ll see a change of rate from them today, so once again the focus will be on the rate statement. Investors will be looking for any change of tone from the bank but again most market participants are expecting a cut and paste from the last statement. The risk is probably skewed to the downside for the currency if we do see any changes, especially if the bank acknowledges the recent out of cycle hike from Westpac which has pushed expectation of a ‘real’ hike even further down the road.
Into the European session and the focus will shift to the sterling once with the Inflation Report Hearings due out in London before we move into the first full New York session of the week and the release of the latest US ISM Manufacturing PMI data. Once again most of these fundamental releases are probably viewed more as a road bump in the way of sentiment as news flow is tending to have more influence on short term moves in the market at the moment. However, investors ignore data at their peril over the medium to long term and major players will be watching the fundamentals closely over the coming couple of weeks.