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Chinese markets reopen & the RBA meets today

Published February 4, 2020

By Rowan Murphy

Well the Corona virus remains the primary concern for markets at the moment and the potential for a pandemic and what that could imply for global growth. The cases and fatalities have continued to grow with over 17,000 people worldwide infected by the disease and the death-toll standing at 362 (as per latest releases). Also of importance locally today is the RBA’s decision around interest rates due at 2:30pm (AEST) today.

Chinese markets re-opened yesterday after the extended Lunar New Year holiday with market participants itching to reposition after being shut out for a week. It proved to be a remarkable day despite policymakers best attempts to keep markets amply supplied with liquidity, with the Shanghai composite gaping nearly 9% at the open although only ending the day 7.88% lower. In the wider commodity markets, oil prices continue to fall with WTI Crude plunging by roughly 3% last night, briefly trading below $50 per barrel and at near 2-year lows on the back of expected diminishing demand from the world’s largest consumer of the commodity.

While the Chinese markets were in free fall yesterday US ISM Manufacturing PMI provided a ‘shot in the arm’ to European and US equities. The release surprised the market with an “expansionary” reading of 50.9, to suggest manufacturing grew in the US economy for the first time since August last year. I’d like to make an editor’s note here though; last night’s reading hasn’t take into account anything since the Corona virus outbreak. Adding to this growing sentiment was a spate of solid manufacturing PMI surveys from several different countries. Manufacturing activity was revealed to have improved in China, Europe and the US last month, adding some evidence to the claim that the global economy is beginning to rebound, again figures reflect pre-corona virus economies.

The day ahead for local markets will generally be focused on the RBA’s first policy meeting for 2020. On balance, the market thinks that the RBA will keep interest rates on hold today with only a 20% chance of a cut implied in market pricing. The primary focus will likely be on the RBA’s commentary about its updated economic forecasts ahead of its quarterly monetary policy statement on Friday, there are a few things that the RBA could take into account which haven’t yet flowed through the economic figures though:

  • Bush fires and the effect on the economy,
  • Corona Virus and the impending drop of foreign tourists and students

Given the above two points if there is an unexpected move, I would wager it would be a cut rather than a hike.

 

 

 

 

 

 

 

 

 

 

 

Adam Nikitins and Stewart McCallum were appointed Joint and Several Voluntary Administrators of EncoreFX (Australia) Pty Ltd on 30 March 2020.

Rees Logan, Adam Nikitins and Stewart McCallum were appointed Joint and Several Voluntary Administrators of EncoreFX (NZ) Limited on 30 March 2020.

Any queries regarding the Administrations should be directed to encorefx@au.ey.com.