IG | Sep 13, 2016 05:10AM ET
Federal Reserve member Lael Brainard stole the headlines with a fairly dovish speech that was hardly indicative of a central bank looking to hike this year. Still, the implied probability of a hike this year has only fallen very modestly and we have seen little in the way of moves in fixed income markets. We have seen a slight calming of nerves though and traders were more than happy to buy developed market risk assets, with emerging market assets and credit also performing positively.
Keep in mind that European and US equities were already rallying into Brainard’s speech and those brave enough to fight the progressive bearish equity sentiment yesterday were rewarded with a US stock market that closed on its high, with excellent participation. Expect Asia to follow suit.
The trade of 2016 has been and remains doing the exact opposite of what feels right and this is what we saw overnight. Moves lower in equity markets of late had been aggressive, but the internals (I have looked at the percentage of companies above their 10-, 20- or 50-day moving averages) had fallen at levels where over the years this level of participation has marked key low points.
The key question for today is how traders act after the open of the various Asian markets and the pricing in of the overnight moves. Specifically, I am keen to ascertain whether traders use this strength to sell into, or whether we see a genuine belief that markets can push higher here. Price action therefore from 10:30 aest will portray so much about market sentiment.
Traders will largely be keeping an eye on the China data dump at midday (aest), but I am not so sure this data will rock sentiment too greatly, unless of course it’s a disaster. However, what we have seen of late is that boring is good and as long as China keeps of the front pages then we can look at other macro factors.
Today’s price action holds many clues for both investors and traders on whether participants feel the recent spike in implied volatile is over or likely to raise its head again.
(Bloomberg chart showing the ASX 200 on the top pane and the % of companies > 20 day average)
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