Market starts cyclical rebound: geopolitical risks ease, focus shifts to earnings reports and Australian inflation data
According to Pepperstone's research director Chris Weston in a recent post, as geopolitical tensions (especially the US-EU trade dispute) have eased, market risk appetite has significantly warmed up, triggering a classic cyclical rebound.
Meanwhile, defensive positions previously established to hedge against uncertainty have been quickly unwound, indicating that traders' focus is also shifting back to strong economic data and corporate earnings expectations.
On the macroeconomic front, the US third-quarter GDP has been revised up to 4.4%, coupled with robust consumption data, a lower number of unemployment claims, and a 0.5% month-on-month increase in personal spending, which has boosted market risk appetite.
In the stock market, the growth performance of the Russell 2000 index and cyclical S&P 500 sector index, along with the general rise in commodities, all show a broad willingness to take on risk;
In the commodities market, gold and silver maintain their upward momentum; in the forex sector, cyclical currencies such as the Australian dollar and Swedish krona are also attracting funds.
This series of phenomena clearly indicates that capital is flowing back from purely risk-averse positions to assets positively correlated with global economic growth.
However, the sustainability of this rebound still faces challenges. The rise in the S&P 500 index has not been smooth, with intraday volatility showing that some traders are still taking profits at highs, leading to noticeable market divergence.
Despite a rebound in risk sentiment, the volatility of major currency pairs is at a 12-month low, suggesting a generally optimistic market outlook, but also exposing its vulnerability to potential shocks.
Currently, the market's focus has shifted to next week's intensive earnings reports to verify whether this rally has fundamental support; strong employment data is also raising expectations for an interest rate hike in Australia in February, with next Wednesday's fourth-quarter CPI report being particularly critical.
Overall, the market is entering a phase driven by data and performance, with geopolitical issues taking a back seat for now, but the depth and breadth of the rebound will depend on the actual strength of the global economic fundamentals.