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RBNZ cuts 50bp, sovereign yields tank
The Reserve Bank of New Zealand (RBNZ) lowered its official cash rate target by 50 basis points to an all-time low of 1.00% unexpectedly. Kiwi fell more than 1.70% against the US dollar to the lowest level since January 2016 and the NZ 10-year yield slid 17 points. The surprise rate action from the RBNZ can only spur the expectations of a similar size cut from the Federal Reserve (Fed). The US 10-year yield slipped below 1.66% in Asia, as the probability of a 50-basis-point cut in FOMC’s September meeting stood at 33%, slightly lower than on Tuesday, after the People’s Bank of China stabilized the yuan near the 7 mark to cool off the sell-off across the global equity markets. The PBoC pledged that the yuan won’t fall continuously in an effort to prevent the US-China trade war from turning into a currency war. White House’s Larry Kudlow said that they still expect to welcome Chinese officials for September talks.

The PBoC’s goodwill gesture has been a quick fix for the US equity markets. Major US indices gained past 1% on Tuesday. The volatility index, VIX, fell 18% after reaching the highest levels since January on the back of this year’s biggest stock rout. The S&P500 (+1.30%), the Dow Jones (+1.21%) and Nasdaq (+1.39%) closed Tuesday’s session in the green, although the Asian traders rebuffed New York gains. US equity futures fell in Asia.

St Louis Fed’s Bullard, a dovish FOMC member, remained impassive regarding the escalation in US-China trade tensions. He said that the Fed has already cut rates to give support to the economy and that the ‘US monetary policy cannot reasonably react to the day-to-day give-and-take of trade negotiations.’ At this point, the FOMC members will likely avoid fueling the dovish Fed expectations, which have already gone well ahead of the Fed’s thinking. The Fed has given a hand, but the market is now looking to take the whole arm.

The Nikkei (-0.48%) and Topix (-0.21%) eased in Tokyo, as the Japanese yen remained the best performer (+0.48%) against the US dollar. Shanghai’s Composite remained unchanged (-0.01%), while Australia’s ASX (+0.68%) gained after the RBNZ surprised by a 50-basis-point cut. Energy stocks (-0.63%) remained offered in Sydney however, amid WTI crude consolidated losses near $53 a barrel. Brent crude extended losses to $58 a barrel.

FTSE futures (-0.03%) hint at a sideways open in London, after having shred 7.25% over the past week. Dip buyers are tempted to enter fresh long positions near the 200-day moving average (7184p) before a further pound recovery, but the dust needs to settle first. Energy and mining stocks should continue weighing on the FTSE, as rising concerns of a weaker global demand keep the downside pressure tight on the commodity markets.

Cable tested the 1.22-resistance on the back of a softening US dollar, as the speculations of an additional 50-basis-point rate cut from the Fed in September pulled the US yields and the dollar lower. The slowing negative momentum in sterling hints that a second bullish attempt could clear the 1.22 offers. The next key resistance stands at a distant 1.2387, the minor 23.6% Fibonacci retracement on March – August drop. Decent 1.22 call options will expire tomorrow and could give a further boost if the pound manages to catch the 1.22 train.

Gold rallied to $1490 an ounce in Asia. Risk averse investors seem determined to test the $1500 level for the first time since April 2013. The falling sovereign bond yields and increased market volatility could justify an attempt to the $1500 mark. Though the gold market is on the verge of an overbought market, with the 14-day relative strength index pointing at the 70% level, investors will likely continue buying the dips.

19-8-2019

Stimulus Hopes Lift Sentiment & Stocks
Quickly recapping, equities experienced their worst week so far this year, and bonds soared as investors sought safety amid an escalation of the US – Sino trade war. The US and UK yield curves inverted flashing recession alarm warning bells. As the Dow dumped … Read more

16-8-2019

Tensions ease as central bank stimulus expectations grow
Wall Street finished a volatile session broadly on positive ground overnight, with the S&P and the Dow advancing whilst the Nasdaq nudged lower. Stronger than forecast US retail sales and better than expected earnings from the likes of Walmart helped calm … Read more

15-8-2019

Carnage on Wall Street as yield curves invert
As recession warnings flashed from the bond market, Wall Street plummeted lower overnight. The Dow closed down 800 points whilst the Nasdaq and the S&P tumbled 3% and 2.9% respectively. Asian markets followed US equity indices lower. An inversion of the 2… Read more

14-8-2019

Stocks Bounce On Trump’s Tariff Delay
Asian markets joined the relief rally overnight, which saw stocks on Wall Street surge, after the Trump administration delayed tariffs on some Chinese imports until December. Good news in the markets has been a rarity over recent weeks, so reports of the delay… Read more

13-8-2019

Dow Below 26K Amid Growing Recession Fears
Wall Street closed sharply lower and Asia markets followed in its footsteps overnight. Political unrest in Hong Kong as protestors brought the airport to a standstill, political uncertainty in Argentina as current President Macri unexpectedly lost in the prima… Read more

12-8-2019

Equities Cautiously Higher Despite Ongoing Trade Pessimism
With part of Asia closed for public holiday, those Asian markets remaining open nudged higher overnight. Meanwhile, European and US futures are pointing to a stronger start on Monday, despite uncertainty surrounding the next steps in the US – Sino trade disput… Read more

9-8-2019

Italy early vote risks weigh on euro
Escalating trade war is all the US got from imposing a 10% tariff on additional $300 billion worth of Chinese imports, from calling China a currency manipulator and most recently from holding off on giving licenses to companies wishing to do business with Chin… Read more

8-8-2019

Odds up for larger Fed, ECB rate cuts
It has been a wild week for the global markets, as the dovish central bank expectations went through the ceiling following the escalating trade tensions between the US and China. The Reserve Bank of New Zealand opted for a surprise 50-basis-point cut (vs 25bp … Read more