12th September 2019 - Markets indecisive ahead of ECB risk



Good morning


OVERNIGHT DATA & HEADLINES


• A gauge of global equity markets climbed overnight, amid small signs of progress in the trade war between the U.S. and China, while bond yields rose as investors remained unsure what stimulus measures the European Central Bank will provide at its Thursday meeting.

• The Hong Kong stocks exchange (HKEX) made a $36.6 billion offer for London stock exchange, which led to substantial gains in equities worldwide.

• The Scottish High Court ruled that PM Boris Johnson´s decision to suspend the Parliament is unlawful, as "it had the purpose of stymying Parliament." PM Johnson said that there’s “no way” Theresa May's Withdrawal Agreement will be brought back.

• The EUR pierced the 1.1000 level and settled around it, weaker ahead of a largely anticipated ECB announcement. There was no apparent catalyst for EUR’s decline, although the Kiel Institute for the World Economy downgraded its forecast for German economic growth in Q3.

• Wall Street was led higher by tariff-sensitive technology and industrial stocks after China extended an olive branch ahead of next month's trade negotiations with the U.S. Dow Jones rose 226.6 points (0.84%) to 27,136.03, S&P 500 gained 21.34 points (0.72%) to 3,000.73 and the Nasdaq added 85.52 points (1.06%) to 8,169.68.

COMMODITIES

• Gold rose on expectations of monetary policy easing by top central banks while global growth risks continue to linger, although improved appetite for riskier assets capped gains and kept it near a four-week low. Spot gold was up 0.6% to $1,494.90 per ounce.

• China's Dalian iron ore futures rose for a third session, boosted by falling shipments from big miners and hopes of further economic stimulus by China, after it scrapped restrictions on two major inbound investment schemes. Spot prices of benchmark iron ore with 62% iron content for delivery to China at $93 per tonne, rising again from $92 on Monday.

• Copper prices dipped after a sharp fall in Chinese auto sales underlined fears of weaker demand. LME copper was bid down 0.9% at $5,772 a tonne, moving toward a two-year low.

• Oil prices tumbled more than 2% after a report that U.S. President Donald Trump weighed easing sanctions on Iran, which could boost global crude supply at a time of lingering worries about global energy demand. Brent crude settled $1.57 (2.5% lower) at $60.81 while U.S. West Texas Intermediate fell $1.65 (2.9%) to end the at $55.75 a barrel.

INTEREST RATES


• U.S. Treasury yields advanced for a third straight day and to their highest in a month, moving in lock step with the euro zone bond market, amid uncertainty about Thursday's ECB meeting, which could prove less aggressive in easing monetary policy. U.S. two-year yields rose to 1.668% from 1.664%, 10-year note yields rose to 1.75% & 30-year bonds also advanced to 2.21%.


CURRENCIES


• The US DXY index broke from its 4-day range and reached the 98.68 resistance level. DXY bulls looking to extend the up move towards 98.94 resistance.

• EUR fell to a one-week low against the USD, a day before the ECB is expected to add further stimulus to the economy. EUR fell from 1.1050 towards 1.0985.

• GBP fell from 1.2370 highs towards 1.2313 support.

• CNY was flat even as mixed signals over upcoming U.S.-China trade talks raised concerns. Spot CNY changed hands at 7.1159 (0.04% lower) than the previous session close.

• AUD climbed to a six-week high overnight reaching 0.6884 highs but settling back towards 0.6860 in morning market open.

• NZD followed a similar path trading up towards 0.6435 but fell back towards 0.6410 in NY close.

• AUDNZD continued in its recent uptrend, making new fresh highs up over 1.0700

• AUDEUR capitalised on the EUR weakness, trading up towards 0.6245 fresh highs overnight (this level last seen 26th July)


EVENT RISK TODAY


• No Australian Economic data releases.

• Japan – July machinery orders

• Europe – ECB policy decision (e-0.5%). Rate cut included in significant stimulus package expected.

• Europe – July industrial production.

• U.S. – August CPI (market expecting 0.1%). Energy a negative influence; core prices up 0.2%

• U.S. – August monthly budget statement. Deficit to continue trending higher over coming year.


AUD thoughts :


The AUD came under modest bearish pressure yesterday following the disappointing data from Australia and dropped below 0.6850. However, renewed optimism surrounding the US-China trade conflict allowed AUD to recover its losses towards fresh 0.6884 highs although broad USD strength didn't allow much gain from there with AUD back lower and unchanged to this morning’s 0.6860 support.


The consumer sentiment data on Wednesday revealed that the Consumer Confidence Index dropped to -1.7% in September from +3.6% in August. Assessing the data, “The consumer mood has lapsed back into slight negative territory again with continued pressure on family finances and concerns about the near term outlook weighing on sentiment,” said Westpac analyst Bill Evans. Later in the day, China's Finance Ministry published a list of US imports that will be exempt from retaliatory tariffs and raised expectations of next month’s high-level trade talks in the US.


For now, investors remain indecisive ahead of the ECB policy decision tonight. Debate about the introduction of QE from the ECB remains and has investors a bit cautious.

Investors have also been given a big lead time for expectations of ECB stimulus so much of the policy moves have likely been priced in. Investors are considering factors such as how effective ECB stimulus will be, the likelihood of Fed rate cuts and rhetoric from President Trump calling for lower rates. AUD, as expected, will be subject to much of the data & announcements that will follow.


Technical outlook :

AUD falls after break above 55 day moving average, key Fibonacci & daily cloud. US Treasury yields rise & broad USD bid keeps AUD heavy during NY trading. Oil & copper drops help weigh; equity gains help to limit the fall. Support near 0.6845/50 intact though major risk tonight as markets await ECB impact on risk. Daily doji candle forms & AUD below 55-DMA again, could mean end of rally.

If ECB actions buoy risk AUD rally might resume and set new highs.





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