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Volatility drops as markets rise

A number of analysts are looking to declare “all clear” on the ructions roiling investors over the last three months. US Federal Reserve meeting minutes released overnight showed a divided board, and were on balance more supportive. Market action was risk positive and calm. However nervousness remains high and many traders view the current market pulse as a corrective rally, and expect the bear trend to re-emerge.

Shares rose, oil prices surged and defensive assets such as bonds remain under pressure. The Euro bounced back after selling inspired by German manufacturing data. Commodity currencies received support at the cost of the US dollar and Japanese yen.

The key issue for markets remains US/China trade. While the US government shutdown is potential politic dynamite, and generates lurid headlines, the global economic impact is far less significant. If the impasse dragged on for months, the situation may change. However journalists are placing far more importance than traders on the shutdown. Professional market participants are focused on Beijing for news.

Regional share markets are looking at modestly positive starts, with the exception of Japan. Inflation data from China may have an impact, especially if it countermands the current “slowing growth” narrative.

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