Traders waiting for September
Traders continue to wait for September to arrive with further stimulus from the ECB and FOMC likely on hold until then. With financial markets playing the waiting game for the expected September stimulus, a test of nerves could arrive if Spanish and Italian yields start boiling over again which could result in risk assets being the first to blink.
Investors are doing their best to remain patient in awaiting stimulus, even though future central bank easing in some meaningful fashion is not what you would call a done deal. With the DJIA above 13000, US Crude oil back over $90 per barrel and risk assets generally performing above average lately, it is clear that investor faith still resides with Mario Draghi. However markets could be setting themselves up for a September fall if the ECB turn out to be guilty of overpromising and under-delivering. And if history is any guide, this scenario is not a great stretch of the imagination unfortunately.
On the back of last week’s run of poor Chinese data one could be forgiven for thinking that we would have seen more FX flows directed the way of safe haven currencies but this has not eventuated yet. Instead, the AUD remains poised for another crack at pushing through 1.06 with traders assessing that the weak Chinese numbers will directly lead to further stimulus from Beijing.
Sentiment this week will largely be driven by what happens on European bond markets, and this will in turn effect how global equities and risk currencies perform. If bad news on the Spanish and Italian yields front is kept to a minimum, we could see a break of the AUDUSD rate to 1.0630 this week if equity markets keep chugging along higher which therefore reduce the appeal of the safe haven USD.
It was a case of ‘steady as she goes’ on the Australian sharemarket to start the week, with the ASX200 index primarily operating in a 15 point range either side of the 4300 level much of the day. The blue chip mining stocks quickly forgot about Friday’s negative Chinese data to trade higher today, mostly in light of the muted response to the Chinese economic indicators from global markets. All in all however it was very much ‘run of the mill’ stuff on the local bourse as we await direction from markets in the US and Europe as the week progresses.