Always the first to take the conservative route, the RBA was clear to state it merely discussed under what circumstances a rate cut would be necessary and were explicit in their view that such a set of circumstances arent present within the Australian economy right now.
3. RBA keeping their powder dry: As is reasonably well known, the RBAs central thesis is that although global growth conditions are softening, and that there remains major domestic economic headwinds, while the labour market keeps tightening, their exists no immediate need to cut interest rates.
Furthermore, the RBA outright acknowledged, in perhaps what is a small hint at government policymakers, lowering interest rates wouldnt deliver the same impact to economic conditions as they had in the past. Nevertheless, traders concluded from the simple recognition of the possible need for further monetary stimulus in Australias economy as a sign that the RBA is losing confidence in the local growth engine.
4. AGBs out of step with global bond markets: The result was a brief fall in the Australian Dollar following the release of the RBAs minutes, as traders repositioned their bets on the future of Australian monetary policy.
Having unwound recently positions that the RBA would need to cut rates by August this year in response to a moderating of global growth fears, yesterdays minutes forced the market to increase the implied number of interest rate cuts before the end of 2019 to about 29 basis points. The knock-on effect saw AGB yields fall, out of step more broadly with bond markets, which experienced a general climb in bond yields yesterday.
5. Growth concerns diminish; but risk appetite neutral: As might be inferred from the moves in bond markets, trade overnight was characterised by a further diminishing of fears about the outlook for global growth. US 10 Year Treasury yields were up by 3.6 basis-points to 2.59 per cent, and 10 Year German Bunds maintained its (albeit slim) positive yield.
It was by no means a total risk-on day, however: stocks were up globally, with the world-indices map a sea of green indeed; but looking at the S&P500 in particular, it was only 0.05 per cent higher for the Wall Street session, as investors digest US earnings season bit-by-bit.
6. China to dominate todays proceedings: A very significant read on the state of the global economy comes today: the so-called monthly Chinese economic data-dump is delivered and this time around, it includes the Middle Kingdoms GDP numbers, too.
The turnaround in fortunes for global risk assets lately has largely come in shifting perception about Chinas economic wellbeing. There is greater hope that Chinas economic slowdown, which had rattled market participants in the first quarter, has bottomed-out. Core to further upside for risk assets, improvements in Chinas embattled economy is a necessary precondition for optimism towards the macroeconomy and for global stocks to maintain their trend higher.
7. Chinese equity markets catch-22: So, equity markets in developed economies need to see strength in Chinas economy to sustain themselves. However, and perhaps somewhat ironically, the case isnt as clear cut for Chinas financial markets.
Chinese equities have outperformed global peers year to date, as markets position for looser financial and fiscal conditions to support growth in the Chinese economy. Less a reflection of strong fundamentals, its been this loosening of fiscal and monetary policy that has driven capital flows into riskier assets. Being this way, strong economic data out of China may reduce the requirement for such accommodative policy-settings and inhibit short-term upside in Chinese stock indices.
8. Market watch:
This column was produced in commercial partnership
between The Sydney Morning Herald, The Age and IG