OVERNIGHT DATA AND HEADLINES
• Government debt and global stock markets held steady as uncertainty kept risk appetite in check just days ahead of a new round of U.S. tariffs on Chinese goods.
• The ZEW research institute's monthly index on economic morale among investors rose to 10.7 from -2.1 a month earlier. The reading exceeded even the highest forecast in a Reuters poll of economists, which showed a consensus prediction of 0.0. ZEW President Achim Wambach said the rise in morale "rests on the hope that German exports and private consumption will develop better than previously thought".
• Growth of U.S. labor costs was not as robust as initially thought in the third quarter, suggesting inflation could remain tame in the near term. The sharp downward revision to labor costs also pointed to some easing of the squeeze on profit margins. Unit labor costs increased at a 2.5% annualized rate in the third quarter. They were previously reported to have advanced at a 3.6% rate.
• U.S. President Trump has days to decide whether to impose tariffs on nearly $160 billion in Chinese consumer goods just weeks before Christmas, a move that could be unwelcome in both the U.S. and China. The way the tariffs are written, the Trump administration has to act, or else they automatically go into effect, trade experts said. Kudlow, director of the White House’s National Economic Council, said late Tuesday morning no decision had been made. The Trump administration said in August it would put 15% tariffs on billions in Chinese-made consumer goods on Dec. 15. Known as the "4B" list of goods, those tariffs would hit video game consoles, computer monitors, Christmas decorations, toys and other items including clothing often given as gifts.
• Wall Street's indexes were mixed in choppy trading after a report that the U.S. and China were planning to delay a new round of tariffs set to kick in on Dec. 15. Dow Jones up 5 points (0.02%) at 27,912, S&P 500 flat at 3,135 and the Nasdaq up 0.05% at 8,625.
• China's consumer inflation climbed to nearly eight-year peaks in November (4.5% on year, the fastest pace seen since January 2012), as pork prices doubled, but factory-gate prices remained in the red, adding to uncertainty over whether the manufacturing sector is bottoming out as trade risks persist. However, core inflation - which excludes food and energy prices - stayed largely subdued.
• The USD weakened with the DXY index falling from 97.60 down towards 97.40.
• EUR was 0.29% higher at 1.1095 after the positive ZEW economic release.
• GBP continued its elevation on the premise of a Tory UK election victory, trading with a bullish bias up 0.41% to 1.3215 highs.
• CNY barely budged as investors remained anxious before a looming tariffs deadline – CNY was flat at 7.0380 but improved marginally towards 7.0320.
• AUD found early weakness overnight, dropping towards 0.6797 lows but regained some momentum to close 0.6815.
• NZD fell from 0.6565 highs down towards 0.6525 however improved late in the session back towards 0.6550.
• AUDEUR fell lower, from 0.6170 down towards 0.6135.
• AUDNZD remained relatively supported around 1.0400 (saw a brief 1.0393 low).
• U.S. Treasury yields rose after trading lower for most of the overnight session, as risk appetite improved amid optimism that the Trump administration could delay imposing tariffs on Chinese goods.
• U.S. 2 year yields advanced to 1.654% from Monday's 1.627%
• U.S. 10-year note yields rose to 1.839% from Monday’s 1.831%
• Yields on 30-year bonds were up at 2.268%, from 2.265% on Monday.
• Australian 1 year swap rate @ 0.801%, 2 year @ 0.737% & 10 year @ 1.147%.
• Gold got a further lift from uncertainties surrounding U.S.-China trade talks ahead of a Dec. 15 tariff deadline and a weaker USD - Spot gold rose 0.14% to $1,464 per ounce.
• Iron ore futures in China rose to their highest in more than 4 months on supply uncertainties expected to emerge during the first quarter of next year. Prices for spot cargoes of benchmark iron ore with 62% iron content for delivery to China also tracked robust futures market and rose to $93 per tonne from $89.50 in the previous session.
• Copper was lifted by buying from Commodity Trading Advisor (CTA) funds and from Chinese investors. LME copper rose 0.4% to end at $6,100 a tonne, the highest since July 19.
• Oil prices inched up as OPEC's deal with associated producers last week to deepen output cuts in 2020 continued to provide a floor for prices, but U.S.-China trade tensions clouded the demand outlook. Brent crude up 11 cents at $64.36 a barrel and WTI crude oil rose 24 cents to $59.27 a barrel.
EVENT RISK TODAY
• Australian Economic data today – December Consumer sentiment (some further clues on consumers unwillingness to spend).
• New Zealand – November retail card spending (last –0.6%). Spending appetites firming as the economy picks up.
• U.S. - November CPI %yr (last +1.8%, mkt f/cast +2.0%). Core holding at 2.3%yr.
• FOMC policy decision (last 1.625%, mkt f/cast 1.625%). The Fed widely expected to be on hold for now, anticipated cuts to come in 2020.
• U.S. Nov monthly budget statement –134.5. Deficit to continue rising in 2020 and beyond.
AUD took a minor hit overnight, falling briefly below 0.6800 (0.6797 lows) as a report from the Wall Street journal reported that U.S. and Chinese trade negotiators are planning a delay.
However, an improved commodity price complex and a weaker USD saw AUD regain composure back up towards 0.6815.
Australian data was mixed yesterday with a survey of business showing activity remaining subdued in November while confidence ebbed a little. NAB’s index of business conditions held at +4 in November, still short of the long-run average of +6. "The survey is consistent with ongoing weakness in GDP growth, especially private demand, and suggests there has been little improvement in Q4 for GDP," said NAB group chief economist Alan Oster. Speaking earlier Tuesday, RBA Governor Philip Lowe said he had been surprised at the weakness of consumption, but was still confident that households would spend much of the extra cash over time. Markets are almost fully priced for another quarter point rate cut to 0.5% by April, with a good chance of a move to 0.25% by year end.
Today we have Australian December consumer sentiment data which will offer further clues on customer spending patterns.
The FOMC is due tonight (early tomorrow morning Sydney time) and widely expected to be on hold. Market reaction is likely to hinge on any forecast changes and hints in Chair Powell's press conference under what conditions the committee would be willing to cut rates further and conversely.
With this week’s risk events still at large suggest AUD remains in a relatively tight with demand resting around 0.6800 and capped at 0.6875.
AUD investors buffeted by trade news, longs still concerned. Risk bounces on report of possible delay on tariffs.
AUD rallies from the daily cloud base but stalls short of 0.6820 - above the converged 10, 21 & 55-DMAs but is still down on the day
Falling daily RSI’s point to weaker price action, long upper wick on monthly candle give techs a bear tint.
Trendline sees any falls supported at 0.6765, gains capped around 0.6850 resistance.