Global stock markets failed to continue with their upward momentum yesterday as investors looked for further details of a proposed trade deal and digested potential risk events ahead this week. Asian markets had started strongly after a good finish to last week but the European bourses meandered through their day before US markets turned south, the Dow leading the way closing 0.79% down. The dollar appreciated steadily over the day’s trading with most of the majors still in familiar territory and the Dxy now trading back up near 96.60. On the commodities front, Oil climbed higher regaining some of it’s losses from Friday’s drop, WTI back to $56.5/b and Brent back to $65.5/b. Gold continued with its recent sharp decline closing the US session around 1287, next support level comes in 1275/1280.
Risk events come thick and fast this week and it kicks off in earnest today. In the Asian session there will be a strong focus on China with the National Peoples Congress opening in Beijing, there are high expectations of stimulus announcements with reports hitting the market that they are planning to cut VAT on certain sectors, including manufacturing by 3%. The impact on GDP could be considerable and should lead to a rally in Chinese stocks, the Yuan and other Asian indices. A combination of domestic stimulus and a trade deal with the US over the next few weeks could be the shot in the arm the Chinese economy needs and lead to a dramatic increase in investor sentiment globally, at the moment we’re still in a ‘wait and see’ situation but this week could see the first part of that equation put in place.
We have the latest RBA rate announcement today and yet again we are expecting no change in the Cash Rate target, so traders will be looking closely at the statement for any changes from last month. The market has become increasingly dovish over the last few weeks and this is reflected in the level of the Aussie dollar trading once again near recent lows under 71 cents and this places the risk trade on the event to the topside for currency players. Analysts will be looking for comments on the domestic housing market, wage growth and inflation as well as the sensitive international trade environment for signs of a change in the central banks outlook.
Looking at the rest of the days trading sessions and there is a raft of Service PMI data out in the London time zone, the UK’s has probably the most potential for market impact and expectation is for a 50.0 print. Into the New York session and the ISM Non-Manufacturing PMI is the major data release for the US and comments from the FOMC’s Rosenbgren will also be monitored closely earlier in the day. Expect sentiment to continue to dominate flow for the next couple of sessions with the market still craving certainty on the long running trade issue and other geo-political concerns, however with strong data due this week, expect fundamentals to start to exert more influence on direction as we move through the days.