Wall Street closed lower for a second straight session as investors weighed up the prospects of a trade deal against fragile global economic health. The Dow spent much of the session hugging the flat-line before ending just 0.05% lower.
Asian markets traded within a narrow range and in a mixed fashion. Chinese stocks rallied in the hope of further stimulus. Elsewhere across Asia, any gains were capped by an increase in regional tensions as North Korea starts rebuilding key missile testing facilitates. Investors are also cautiously waiting for US – China trade cues or fresh catalysts on global growth.
Investors aren’t prepared to run the current rally any further without more tangible evidence of progress towards a US – China trade deal or concrete evidence of improved global economic health.
At the beginning of the week, China lowered its growth forecast to 6% -6.5%. Overnight, data showed the Australian GDP declined in the final 3 months of 2018, missing expectations. However, US data has been looking more robust with ISM non-manufacturing and new homes data smashing expectations in the previous session. A strong reading from Friday’s non-farm payrolls could spur another move higher in equities. It would support the US economic growth story, which will overshadow the Chinese slowdown concerns, particularly as talks are supposedly moving towards a positive conclusion.
Aussie dollar hits 4 moth low
Following on from the strong US data, the dollar extended its rally sending the euro back below €1.13 and the pound sub $1.3150. The Australian dollar was hit following data showing that the economy grew at 0.2% in Q4 2018, below the 0.3% forecast. The Aussie dollar dropped to a 4-month low of 0.7028. The Aussie dollar could see further downside. Even though the RBA continue to put on a brave face, the economic backdrop remains uncertain and data is tilting to the weakside, boosting speculation of a rate cut from the central bank.
Oil drops on inventory build
Oil extended declines in early trade on Wednesday, hitting a low of $55.98. The API reported that oil inventories increased by 7.3 million barrels last week. The builds in crude stockpiles are undermining the OPEC cuts in production, which is hitting the supply side of the equation. We would need demand expectations to increase considerably to be able to handle the supply side increase in output. And until a US – Sino trade deal is agreed, that is unlikely to happen. OPEC are expected to delay the decision to extend the output cuts until June, from April.
Opening calls
FTSE to open 10 points lower at 7173
DAX to open 9 points lower at 11611
CAC to open 5 points lower at 5292
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