We saw a continuation of the early rally across risk assets yesterday as the market reacted to the positive outcomes from the G20 summit and the trade truce put in place between the US and China. Global stock markets had a strong day with most of the major indices finishing above 1% in the black. Risk trades in the currencies gained from Friday’s levels with the dollar dropping off and the Cny gaining well . Oil took another step higher as the impact of the agreement between Russia and Saudi Arabia on supply cuts continued to influence market flow, WTI trading back up above $53/b and Brent near $62/b.
It was a strong reaction for global markets yesterday after the G20 summit, but maybe not as strong as some market analyst would have thought or hoped for, this seemed particularly apparent in the major currencies. Even though we probably got the best hoped for outcome in the halting of tariff increases, most of the other parts of the agreement between the two superpowers seem to lack substance with a distinct lack of consistency between the press statements and then subsequent comments from the US administration. The fear across global markets is that this is just a short term relief rally and we will find ourselves back where we were a few weeks ago and staring down the barrel of a long term global growth slow down. The market will need more concrete evidence of real cooperation between the two major players and there still seems to be a lot of work to be done before we hit that stage. In the short terms it seems we may find investors once again back to trading sentiment fluctuations as news hits the markets piecemeal on trade agreement progress.
Closer to home today, we have the latest RBA rate announcement and it will come as no surprise that we are not expecting any change once again from the central bank. Despite seeing signs of faster growth in the data this has not translated through to the wage inflation that the bank is looking for and with the housing market still a major concern the committee should once again remain on hold. The Aussie dollar has rallied well in the last few weeks on the back of increased global optimism but we’re still trading at very comfortably levels for the central bank. There will probably be little in the way of currency reaction to the announcement and statement today with global concerns still very much superseding domestic factors in currency value.
Australian data will be the main highlight of the day in terms of economic releases with the Current Account data front running the RBA in the Asian session. The focus will turn firmly on to sterling and the UK market as London opens today with BOE Governor Carney set to testify in front of the Treasury Select Committee on the Brexit Withdrawal Agreement. It’s relatively quiet in the US session today, so expect sentiment and continued focus on the Trump- XI meeting fallout to dominate market direction.