Markets Today: Spring has sprung

The global financial markets are breathing a sigh of relief and enjoying the advent of Spring here in the Southern Hemisphere. Happy days: the Fed may wait a little while before raising rates and China seems to have everything sorted.

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The global financial markets are breathing a sigh of relief and enjoying the advent of Spring here in the Southern Hemisphere. Happy days: the Fed may wait a little while before raising rates and China seems to have everything sorted. We can dismiss the unsettling China import numbers as a blip and have confidence in the measures to ensure the economy is stable.

That message was taken with gusto, with US equity markets up over 2% and European bourses rising over 1%. Shanghai had an afternoon rally, ending up 2.9%. US yields rose, as did the major European yields. Oil prices were higher, as was iron ore. Meanwhile, in FX, the AUD was a strong outperformer, and the rally in EM currencies highlights the risk-on tone. The USD was weaker, as EUR was supported.

There was very little on the news front overnight, with the sentiment rally coming from the Asian session yesterday. We did get the US’s NFIB small business sentiment survey, but that was a little better, as expected. The strong labour market component was known last week.

German trade data showed positive exports and imports and didn’t move markets; neither did the small upward revision to Q2 GDP for the Euro area.

Yesterday, NAB’s business survey showed a jump higher in business conditions (+11from +6) but confidence was lower (+1 from +4). Conditions were at their highest since 2009, with trading and profitability higher; employment remains subdued. Confidence appears to have suffered from the equity market weakness and concerns regarding China’s growth. The AUD responded positively to the survey.

Interestingly, the AUD failed to respond to the very weak China import data. The headline trade surplus for China was very good, but that was due to a sharp slump in imports, rather than a pick-up in exports. One explanation could be the decline was due to the port explosion and fire closing the world’s 4th largest port and preventing imports from entering China. This may be the reason behind AUD’s lack of response. Or it may be a sign of just how short the market is already.

The global financial institutions continue to call on the US to delay its tightening cycle. This time it was the World Bank (last time it was the IMF). They worry about the impact this will have on emerging markets. This was a worry that the Fed’s Williams noted yesterday, amongst the positive comments regarding the improved domestic economy. It is becoming more difficult for policy markets to make decisions independent of the global economy now. Although the impact the recent ructions have had on domestic financial conditions (as Williams noted) via equity prices and the stronger USD, show the direct domestic linkages. The longer they put it off, the happier markets will be; until the day comes that they actually have to start.

Coming Up

We start to get more information flow on the domestic side today, with consumer confidence and home loans. However, it is the RBA speakers than might get more attention. The RBA’s Deputy Governor Lowe is speaking at an economics function and could cover the present economy or a broader topic. With a lot of uncertainty around regarding the economic outlook, it has the potential to impact markets. Following this, in London, RBA’s Assistant Governor Debelle is speaking at an event covering the FX Code of Conduct. Any move off topic might be market moving.

GBP has been an outperformer of late, which raises the risks of any weaker industrial production or trade data.

For EUR, and after last week’s market moving Draghi comments, the ECB’s Chief Economist Praet is speaking. He has a tendency to try and direct market thinking if the ECB has a particular agenda.

RBNZ decision is released as we come in tomorrow. The consensus is completely agreed in looking for 25bp of easing to 2.75%. The thing to watch is the change in the growth and inflation outlook and what that implies for the path of policy ahead. Our BNZ colleagues look for a lower GDP outlook but higher inflation. The market reaction is likely to depend on when the following easing is suggested in the rate path, as yet that is not fully priced for October.

Overnight

On global stock markets, the S&P 500 was +2.40%. Bond markets saw US 10-years +7.08bp to 2.20%. On commodity markets, Brent crude oil +3.82% to $49.45, gold+0.0% to $1,121, iron ore +1.0% to $57.42. AUD is at 0.7028 and the range was 0.6923 to 0.704.

  • China imports -13.8%yA, -7.9E, -8.1P
  • China exports -5.5%yA, -6.6E, -8.3P
  • US NFIB business survey 95.9A, 96E, 95.4P
  • German Trade 25bnA, 23.5E, 24P
  •  EU GDP revision 0.4%qA, 0.3E, 0.3P

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