Weaker Chinese, French and German activity data kicked off ugly trading on Friday night. European investors fled share markets and oil and industrial metals came under pressure. US investors responded to the weak leads, despite stronger than expected domestic retail sales and capacity utilisation numbers. The US dollar strengthened and bonds rose, increasing pressure on commodity prices.
Asia Pacific investors are looking at a weaker start to trading. The US Federal Reserve’s interest rate decision due early on Thursday morning is a key event for global and local markets. While a 0.25% lift in US rates is widely anticipated it is the Fed’s view of the path for the US economy that could provoke a reaction. Any content that speaks to the difference between market pricing of one interest rate rise in 2019 versus previous Fed indications of three rises is very likely to move markets.
The current market debate has moved well into the future. It centres on whether the US is heading into a 2020 recession, taking the world with it. When the market focusses so far out in time there is potential for larger price swings as sentiment coalesces to one viewpoint, and then the other. Australian investors will turn to RBA meeting minutes released tomorrow for a local view on the current conundrum.