UNIT University Network for Investing and Trading UniMelb

Market Wrap 20/10/19

By: Victor Yan


Equities

After an optimistic mid-week push in the ASX 200 following reports of a breakthrough Brexit deal, such gains were short-lived as market optimism faltered – as scepticism broods in investor beliefs in UK PM Boris Johnson securing domestic support for the deal, due to the Conservative Party non-majority status within Parliament. This was compounded by the reported lack of support by the Democratic Unionist Party (DUP) for the proposed Brexit deal. Overall, the ASX 200 still managed to ground itself on a positive footing for the week, closing on 6646.20 relative to Monday’s open at 6606.80.

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US markets also benefited from the reported Brexit deal to during the front-end of the week, as Tuesday saw gains to a mark of 3000.78 from Monday’s close at 2966.13. Favourable earnings results by Morgan Stanley and Netflix helped push the S&P 500 to a high of 3006.99 on Thursday. However, US investor optimism similarly waned on the realistic chance for a Brexit deal, along with weak US retail sales data, led the index to revert back to 2985.98 – albeit an overall positive climb for the week.

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Commodities

Crude oil prices dipped for the week, largely fuelled by concerns over China’s future economic health (of which slowed to 6% YOY for the 3rdquarter). A further downwards revision for global growth forecasts by the IMF to 3% (slowest rate since the 2008 crisis) exacerbated the decline in oil. Of course, economic rationale proposes that a weaker global economy spurred on by the world’s 2 largest economies would slow down demand for oil. Yet, such losses were limited on the optimistic expectations of trade-deal progressions between China and the USA, where weak growth in China may place economic pressure on its representatives to try and close a deal.

On the supply side, the Energy Information Administration reported a 9.3 million barrel increase in crude oil inventories for the week. This extends a string of inventory expansions to a 3 week period, where the EIA estimates that the current 434.9 million barrels were 2% above the 5-year average for the season. Naturally, this build-up in inventories beyond supply expectations had also contributed to the bearish outlook on crude oil pricing.

Forex

Much of the Forex attention this week has been centred around the British pound following such Brexit developments. Relative to the greenback, the announcement of the Brexit deal saw the pound shoot up to 1.30 for the week, almost recovering its losses for the year following UK political turmoil. Yet, it will be up to the parliamentary outcome to determine the pounds stability at this newfound level.

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The Australian Dollar enjoyed fruitful gains this week – helped on by both domestic and international factors. A strong domestic jobs report by the RBA led to market relaxation on expectations for a further rate cut in November – of which would have depreciated the AUD as capital flows towards the dollar become relatively less attractive. On the other side of the coin, the surge in AUD was helped on by a fall in its relative greenback, which had depreciated due to a signal by the Federal Reserve for the possibility of future rates cuts.

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Sources: Bloomberg, NY Times, WSJ, Reuters

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