Global financial markets continue to trade with a cautiously optimistic tone in the current environment. Stock indices had a mixed day across the board yesterday as the market waits for the outcome of some key risk events this week. The dollar retreated again as haven flows fell off and news that the US is asking China to maintain a stable currency as part of ongoing trade negotiations led to a sharp appreciation in the Yuan, Aussie and Kiwi. The pound also had another strong day as Brexit hopes increased again as UK PM May prepares to take another trip across the channel to talk to EU counterparts, its now up nearly 2.4% against the greenback from last week’s lows. Commodities remain bid with Gold surging up past the 1340 level, Iron Ore near 625 and Oil continuing to hit new highs on the year, WTI trading north of $56/b and Brent above $66/b.
Investors are craving clarity on a number of issues that are affecting market sentiment and there’s a chance they could have some more answers by the end of the week. The US–China trade negotiations are still top of the list with Brexit coming in a close second, both of these issues probably have a few more twists and turns in them before we get real clarity on the situation and this could mean more volatility for the markets ahead. Market observers will notice that it doesn’t seem to long ago that the US were accusing China of currency manipulation, along with several other market participants, but now appear to be ok with that stance with the Cny at more favourable levels. It could prove an interesting caveat as long experience shows that the market will generally win in the end against interventionist policies and even the PBOC could struggle in the long run against the fundamentals.
We have two significant central bank events this week with the release of the latest meeting minutes from both the Federal Reserve and the ECB. The Fed is first up tonight with the ECB tomorrow and investors will be looking closely to each banks reaction to their different internal risks as well as changes to the global trading environment. Risk probably sits to the topside for both from a currency perspective with more dovish expectations priced in market.
Looking ahead to the rest of today’s trading and the focus will be on Australia early in the Asian session with the release of the latest Wage Price Index data with market expectation sitting at an increase of 0.6% for the quarterly number. There’s little in the way of tier 1 data due out for the rest of the sessions and it’s a long haul to the end of the US session and the release of the Fed’s minutes, however expect news wires to be closely monitored for any fresh news that could spark market moves.