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Market Wrap 06/04/2019

By: Richard Lee


Equities:

The S&P/ASX200 has ended lower at 6181.3 or 0.83% lower. This is the second straight day of losses, erasing previous gains and leaving the index flat for the week. This has primarily been driven by the financials and healthcare sectors falling. However, the lower weighted technology, consumer staples and property trusts sectors also contributed to the decline.

On the trade war front, the United States and China relationship appears to be mending, with President Xi Jinping saying substantial progress had been made with a trade deal. Evidence of this is also shown with both sides closing in on a deal after four months of negotiations between the United States Trade Representative Robert Lighthizer, the US Treasury secretary Steven Mnuchin and China’s vice-premier Liu He. More importantly, the issues of intellectual property, theft and tariffs are being discussed in the deal. This has further sparked new energy into the markets, with US equity-index contracts advancing alongside Chinese stock futures. This suggests a stronger risk-on mood in the two largest economies, key drivers in global growth. The Europe STOXX 600 has remained relatively subdued to the bullish sentiment in the U.S. and China, growing less than 0.05% and ranging over the last two days. The recently released U.S. jobs report indicated a healthy economy, with the country adding 196,000 jobs in March and the jobless rate holding at 3.8%, adding to the risk-on sentiment in U.S. equities. This was a significant rebound from the previous poor performance in February and was aligned with expectations, which projected to show an acceleration in employment gains in the month.

Commodities:

The big story in commodities is Brent Crude rising above $70 a barrel this week, the first time since November 2018. This was largely due to supply cuts by OPEC, with supply concerns in Libya and Venezuela. An increase in US shale production has failed to deter this initially, with oil production rising to a record 12.2 million bpd last week. However, Brent has slipped slightly most recently to $69.24 or 0.23%. Saudi Arabia is likely to benefit from a high oil price, despite the long-delayed Aramco IPO. In fact, the country has been a large proponent of OPEC and its allies cutting supply, which may suggest an inflated value for the company.

Forex:

Surprisingly, the pound sterling has remained quiet in the face of the U.K. Prime Minister Theresa May asking the EU to delay Brexit until June 2019. However, policymakers and investors remain on high alert for sudden movements in the currency, particularly with previous significant intraday swings the week before. This follows a slight rally previously in the week, in response to decreasing expectations that a chaotic Brexit will occur.

In international news, the Indian Rupee fell 0.1% today to its weakest level in more than a week, primarily driven by Reserve Bank of India’s recent decision to cut its benchmark interest rate, the second time this year; the policy repo rate falling by 25 basis points in each instance.

Bonds:

Bond yields have primarily risen with the risk-on environment in equities; U.S. 10-year note yields rising to two-week highs, with most Euro bond yields also rising, particularly Germany’s and Britain’s 10-year yields rising over the last week. Currently, the market has priced in a rate cut, however the positive news from the recent U.S. jobs report suggests this might be unwarranted.

Other Assets:

Bitcoin has surprisingly rallied during the start of the week, which has breathed new life into cryptocurrencies. The currency rose for 22.71% on the week, with Ethereum and Ripple following suit, rallying 16.98% and 15.94% respectively. This is also a reflection of the risk-on environment trickling down into the alternative assets.

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