Global stock indices rallied well during trading yesterday as signs of progress came across on some of the key issues that have been causing concern for the markets. Earlier in the day news filtered through that a deal on border security had been agreed in Washington which should avert a government shut down and then later we heard that President Trump could let the March 1 deadline for higher tariffs slide if a deal looks likely between the US and China. US markets jumped well with the S&P having its best day this month, finishing up 1.29%, the Dow and Nasdaq out stripping that closing up 1.49% and 1.46% respectively. The dollar experienced its first drop in eight days with the Dxy now trading around 96.70, nearly 50 points off its yearly high made earlier in the day at 97.20. Oil gained back some of it’s recent lost ground on the back of the increased optimism with WTI up 2.85%, over $53/b and Brent up to $62.50/b.
The markets rallied well as optimism for global growth increased yesterday, but investors will be craving clarity over the next few days if the momentum is to be maintained. President Trumps calls are crucial on both issues and even though we saw a step in a more positive direction yesterday both issues also came with presidential caveats. On the tariff situation he added that he’s not inclined to let them slide at the moment although the market focussed on the initial comment and on the deal in Congress he advised that he’s ‘not thrilled’, hardly a ringing endorsement. The market will be watching both situations very closely in the coming sessions and expect further volatility on the back of fresh news on both issues.
The RBNZ’s latest rate announcement is due out today and once again markets are firmly expecting another no change decision with the rate remaining at 1.75%. With data slowing domestically and in the key closely correlated markets in Australia and China a more dovish statement is widely expected. They have been ahead of the game for developed markets as one of the first central banks to turn neutral and may turn even more dovish today in light of increasing global growth concerns and more dovish fellow central banks across the world. The market is now pricing in a strong chance of a rate cut coming by November and this probably places the risk trade on them coming in with a more neutral stance for this meeting.
Looking ahead at the rest of today’s trading the RBNZ meeting will be the main focus in the Asian session which is expected to start strongly on the back of the rally in US markets. The focus will shift to the UK on the London open with the release of the latest CPI, PPI and RPI data, the New York open see’s the release on the US CPI data and if we start to see a slowing in this number we may see a bigger potential pause from the Fed. These are crucial pieces of data and expect to see volatility on any large deviations from expectation but investors will react just as strongly to any changes in progress in the ongoing trade and Geo-Political issues.