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Not with a bang, but with a groan
Without all the fire and fury we saw in December, markets are once again anticipating the slowdown in global economic growth. One might argue forcefully that this speaks to the importance of Fed support in the US for strengthening the equity market, but it is a drum to beat (again and again) for another day. Basically, traders are quietly re-pricing for a world where economic growth will be weaker than expected. This behavior has long been evident in Chinese markets. Pessimism in the Asian region is therefore nothing new. The focus is now on Europe and, to a lesser extent, North America, which is increasingly showing that market participants believe that these economies are rapidly closing in on a period of (even) lower rates, growth and inflation.
The many facets of the history of global growth
The causes of this impending slowdown are not lacking – and in the financial media, everyone trains well. The trade war remains the People's War, which provides a convenient explanation to the confluence of confused and complex causes of China's recent economic malaise. It is this common thread that explains why Europe is also feeling the effects, it is the geography stuck in the midst of the heavyweights of the trade war. Add to that Brexit anxiety and internal political turmoil on the continent, this is the story that guides the economic prospects of Europe. The US economy is still buzzing and the data coming out of it still show a robust economy. Nevertheless, price action indicates that it is somewhat ignored, with yields betraying a deep concern for economic health.
What the bond market says
Essentially, everything is written with returns at the moment. Some unwanted milestones were reached in the bond markets this weekend. The largest was the German Bunds, which saw their 10-year yield fall to 0.08% – its lowest level since 2016 – even though the fixed income markets have left unchanged the implicit probabilities of decision-making. the ECB in 2019. Japanese 10-year government bonds have returned below the 0% mark, with the markets remaining resigned to the fact that the Japanese economy will see no sign of inflation in the foreseeable future . And despite the lack of momentum in the data behind this situation – aside from a general tone of "risk reduction" for Friday's trading, US Treasuries have risen, with traders anticipating increased odds rate cuts by the Fed this year.
The RBA adds its 2 cents
The basic badumption of the market, that interest rates are going to have to go down, is just as clearly evident in internal trade on Friday. The RBA's Monetary Policy Statement, released Friday morning, allowed markets to buy material at a price, which poses a further risk of lowering local rates. After Tuesday's central bank meeting and RBA Governor Philip Lowe's influential speech on Wednesday, it is perhaps surprising that the RBA's transparency could be incorporated into the future yield curve. There was an immediate market reaction to the RBA's SOMP to increase bets on rate cuts in 2019 to over 60%, to increase Australian government bonds and to sell the dollar. Australian – pushing the local unit below the 0.7100 handle, thereafter.
The RBA's point of view on economic growth
This is another softening of the RBA's economic growth prospects that has stimulated the recovery of activity. The SOMP was far from being a manifesto of pessimism. However, what the markets had predicted for a long time was clearly stated in the first lines of the RBA document: "GDP growth unexpectedly slowed in September … The Bank's growth forecasts were revised downwards to light of recent data, especially for consumption. GDP growth is expected to be around 3% this year and 2½% by 2020. "The SOMP contained a lot of good news, it should be noted, especially with regard to labor market prospects. However, sentiment has been hanging on growth prospects as traders are badessing how a slowdown in the global economy is likely to emerge.
ASX has been following declining global equities
The decline in ACGB and Australian dollar returns once again supported the ASX 200, but the effect was fleeting. It was a bearish day for ASX Friday, no matter how you turn it. It was just one of those days for risky badets because the bulls went away to blow a little, at the end of a week, which was a very good balance for Australian stocks. The strength of the stock market throughout last week may have been lacking in other parts of the world: Wall Street closed the week up very little, the stock markets of continental Europe lost more of 1%, the Nikkei fell -2.00%, a weaker GBP kept the FTSE in the green.
Price action for the ASX 200
The last price traded on SPI Futures suggests a drop of 4 points at the opening for the ASX 200 this morning. The market showed signs of short-term exhaustion on Friday after its dramatic recovery earlier this week, as above-average volumes pushed the index higher. Resistance to the September low of the ASX 200, around 6100/05, was respected as the highest of the week. The Daily-RSI is still in overbought territory, although it does not yet have a sales signal or a major change in its momentum. The 200-day EMA Spring Break shows that the moving average is slowly increasing, which bodes well for bulls. In the immediate future: the long-awaited withdrawal could be upon us, with the November high at 5950, the next logical level of support to watch for.
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