Market recap: Global equities rally but safe haven assets falter
Friday’s news of a partial trade deal between the US and China boosted equities, with the DJIA advancing 1.21%, the S&P 500 gaining 1.09% and the Nasdaq spiking 1.34%. US President Donald Trump announced what he called “phase one” of a new trade accord that covers agriculture, currency and some aspects of intellectual protection. Trump has claimed the pact could take up to five weeks to be confirmed in writing and could still break down, but expressed confidence it will not. Major indices ended their weekly losing streak, with the DJIA gaining 0.91% and the S&P 500 rising 0.62%.
Safe haven assets, though, retreated and investors, boosted by renewed optimism regarding tariff talks between the two superpowers, flocked to riskier assets instead. The Dollar Index fell for the third session in a row, tumbling 0.41%, while gold fell 0.33% and the yen weakened 0.29% against the greenback. US Treasury yields rose across the board, continuing their two-day streak. Two-year yields gained 5bps to 1.59%, 10-year yields advanced to 1.73% and 30-year yields rose to 2.19%.
Sterling continued its gain against the dollar, with GBP/USD strengthening 1.81% on Friday. The gains followed Brexit meetings between the EU’s Chief Negotiator for Brexit, Michel Barnier, and the UK’s Secretary of State for Brexit, Stephen Barclay.
In Asia, major indices tracked their US counterparts, ending their weekly losing streak as well. The Nikkei, Hang Seng Index and Straits Times Index surged 1.82%, 1.89% and 1.16% from the previous week. On Monday, the Hang Seng and Straits Times Index opened 0.81% and 0.50% higher.
Today’s analysis: Will the Aussie react strongly to upcoming RBA minutes?
The Royal Bank of Australia (RBA) is expected to release its minutes from its October monetary policy meeting tomorrow, October 15th at 4.30am (GMT +4). They are likely to give investors greater insight into what to expect for the RBA’s next monetary policy meeting on November 5th. During October’s meeting, the RBA cut its Official Cash Rate (OCR) by 25bps to a record low 0.50%. The board justified its decision by citing increasing global downside risks and a weakening domestic economy, despite a strong labour market. The board also reiterated it is willing to hold low interest rates for an extended period and is prepared to further ease monetary policy if needed.
*Source: ADSS, TradingEconomics
The market expects to see similar views on the domestic and global economic outlook from the last meeting minutes and it is unlikely that RBA board members will deviate too much. Domestically, we predict RBA board members will still be cautious, with GDP weakening in Q2 from 1.7% to 1.4%, while also noting the labour market is still strong, with unemployment at 5.3% for August. The primary concern for board members should be increasing global risk, which is expected to affect the Australian economy.
We expect the Aussie to be little changed on release of the minutes, since it is unlikely to deviate much from market expectations. The driver for the Aussie should be recent developments in the US-China trade dispute instead. As both countries’ officials have indicated positive developments during last Friday’s meeting, it is likely that we will see the RBA hold rates for November, and adopt a wait-and-see approach, due to volatility surrounding the US and China. The Aussie is therefore likely to see little change, ranging between current levels of 0.677 and 0.680.
*Source: ADSS, Tradingview
It was a good day for bulls trading the Aussie as US-China tensions eased on Friday. We expect the minutes releasing tomorrow to have little effect on the currency, instead reacting more to US-China trade dispute developments. In the short-term, it is likely we will see the Aussie trade between the 0.677 and 0.680 range, as bears try to push past the initial support at 0.677’s level.