10th May 2020 - Bulls seek strong push to extend Friday’s jump to 10-week top

Good Morning,

Market Headlines

Sentiment was boosted by a very disappointing US jobs report, which caused markets to extend their expectations of monetary and fiscal accommodation. The S&P500 rose 0.7% to a record high, and the US dollar fell sharply against all the majors. Term bond yields fell only briefly, supported by rising inflation expectations.

The 10yr yield initially reacted to the jobs data by plunging from 1.58% to 1.46%, but then recovered to 1.58%. 10yr break-even inflation rose from 2.44% to 2.51% - a fresh high since 2013. Australian 3yr government bond yields (futures) fell from 0.26% to 0.25%, while the 10yr yield closed unchanged at 1.64% after recovering from a dip to 1.59%.

Commodities, Brent crude oil futures rose 0.3% to $68.30, copper rose 3.2% to a record high, and gold rose 0.9%, while iron ore rose 5.3% to $211.90 – a record high, and lumber rose 2.5% to a record high.

Overnight Currency Ranges

AUD/USD 0.7763 0.7863 2 month high

EUR/USD 1.2053 1.2171 2 month high

GBP/USD 1.3890 1.4005

USD/JPY 108.34 109.28

NZD/USD 0.7207 0.7300 2 month high

USD/CAD 1.2125 1.2200

USD/CNH 6.4001 6.4670

AUD/JPY 84.68 85.31

AUD/NZD 1.0750 1.0790

AUD Thoughts

AUD/USD fails to extend the week-start upside gap beyond Friday, taking rounds to 0.7850 by the early Monday morning in Asia. The Aussie pair marked the heaviest jump in over three weeks the previous day but is recently struggling to please bears ahead of second-tier Aussie data and mixed factors describing the market sentiment.

The Non-Farm Payroll backed ride needs more fuel…

Friday turned out to be a complete shocker for the global markets as the US headlines Nonfarm Payrolls came in less than a third of market consensus, 266K versus roughly 1 million expected. The US Unemployment Rate for April also jumped to 6.1% versus a likely drop to 5.8%. While disappointment from the US jobs report should have ideally weighed on the global sentiment, the data offered strong support to the Fed’s defence of easy money policies, which in turn propelled Wall Street and gold prices. However, the US dollar index (DXY) dropped to a fresh low since late February, not to forget reporting the biggest daily losses in six months.

Looking forward, National Australia Bank’s (NAB) Business Confidence and Business Conditions for April will accompany March’s final reading of Retail Sales to direct near-term AUD/USD moves. Given the scheduled figures are likely to offer no major surprises, traders will keep their eyes on the risk news and the coronavirus (COVID-19) or vaccine could be a bet.

AUD/USD benefitted from the softer USD on Friday and traded to a high of 0.7863 before closing at 0.7845. Some key technical resistance was cleared with the next bout of offering interest expected ahead of 0.7900 while demand likely rest back toward of 0.7815/20

Event Risk Data Today

Australia: Preliminary estimates showed a stronger than expected 1.4% gain in retail sales in March – led by reopening rebounds in WA and Vic, which were affected by 'mini-lockdowns' in Feb. Significant flood disruptions in NSW and Qld and yet another mini-lockdown in Qld late in the month appeared to have had little impact. Meanwhile, real retail sales look to have eased a touch in Q1, preliminary monthly estimates showing nominal sales down –0.1% for the quarter. The CPI detail suggests retail prices remain subdued, for food in particular. We expect the retail deflator to show a muted 0.2% gain meaning volumes are down 0.3%qtr (note that the wider consumption measures reported in the national accounts include many categories not covered by the retail survey that are likely benefitting from reopening – a wide array of consumer services in particular). Ahead of the April release of the NAB business survey, the March update showed business conditions at +25, a historic high.

Euro Area: The May Sentix investor confidence index will be published, having pushed above pre-COVID levels on the acceleration of the vaccine rollout and the prospects for rebound over the second half.

US: The FOMC’s Evans will discuss the economic outlook.