OVERNIGHT DATA AND HEADLINES
• The USD fell and global equity markets retreated from fresh highs, as signs of renewed U.S.-Iranian tensions scuttled a rally triggered by a U.S. labour report showing a strong economy despite slowing job growth in December.
• U.S. Nonfarm payrolls increased by 145,000 jobs last month, with manufacturing shedding jobs after being boosted in November by the end of a General Motors strike. The jobless rate held near a 50-year low of 3.5% and a broader measure of unemployment dropped to a record low 6.7%, though wage gains ebbed.
• Wage stagnation also contributed to the drop in yields. Average hourly earnings rose by 3 cents, or 0.1%, last month, after increasing 0.3% in November. That lowered the annual increase in wages to 2.9% in December from 3.1% in November.
• Washington spurned an Iraqi request to prepare to pull out its troops, amid heightened U.S.-Iranian tensions, and said it was exploring a possible expansion of NATO's presence there. Seeking to tighten pressure on its foe, the United States meanwhile imposed more sanctions on Iran.
• U.S. stocks fell from record-high levels after data showed slower-than-expected December U.S. jobs growth. Dow Jones fell 0.46% to 28,823, S&P 500 lost 0.29% to 3,265, Nasdaq fell 0.27% to 9,178.
• Protests erupted across Iran for a second day on Sunday, piling pressure on the leadership after the military admitted it had mistakenly shot down a Ukrainian airliner at a time when Tehran feared U.S. air strikes. "They are lying that our enemy is America, our enemy is right here," a group of protesters outside a university in Tehran chanted, according to video clips posted on Twitter. Public anger boiled up following days of denials by the military that it was to blame, issued even as Canada and the United States said a missile had brought the plane down.
• The USD edged lower with the DXY index falling 0.10% from 97.58 highs towards 97.35.
• USDJPY strengthened, falling from 109.69 towards 109.43.
• EUR gained after negative payrolls headline data, up from 1.1085 towards 1.1130 highs.
• GBP couldn’t capitalise on the weaker USD, instead falling lower from 1.3095 down towards 1.3020.
• CNY hovered around five-month highs – opening at 6.9283 and changing hands at 6.9329 on the close.
• AUD was higher over the night session, jumping up from 0.6850 lows towards 0.6910. Opens this morning lower at 0.6890.
• NZD action improved towards 0.6645 highs however gave up all gains falling towards 0.6615.
• AUDNZD was higher, breaking up through 1.0400 to reach a 1.0407 high.
• AUDEUR performed well over the session, bouncing from 0.6165 lows to a 0.6214 high.
• U.S. Treasury yields were lower after the nonfarm payrolls report showed job growth slowed more than expected in December and wages stagnated, limiting inflation risk.
• Trade was choppy following the report. Yields first fell, then recouped, then fell again to end the day lower.
• The benchmark 10-year yield was last down 3.3 basis points to 1.82%.
• The 2-year yield was half a basis point lower at 1.570%, reflecting expectations payrolls report will not change the Fed’s steady future interest rate plans.
• European government debt yields dipped but stayed near one-week highs. The benchmark German Bund yield was down 1.3 bps at -0.23%, having briefly touched a one-week high at around -0.20%.
• Gold edged higher, and was on track to post a weekly gain for fifth straight week, as fresh sanctions on Iran by the U.S. stoked uncertainty. Spot gold rose 0.5% to $1,562 per ounce.
• Steel futures in China were lower with demand cooling ahead of the upcoming week-long lunar NY holiday. Spot cargo prices of iron ore with 62% iron content for delivery to China fell by $1 to $95.2 per tonne.
• Copper was up by more than 1% for the week - Benchmark LME copper rose 0.3% to $6,198 a tonne.
• Oil fell below $65 a barrel in its first weekly loss since late November, erasing the week's risk premium. Brent crude settled at $64.98 a barrel (down 39 cents). WTI crude fell 52 cents to end at $59.04.
ECONOMIC CALENDAR TODAY
• Australian Dec MI inflation expectations %yr (last 1.5%). Inflation subdued.
• U.K. – Nov GDP estimates
• U.K. – Trade balance – Industrial & Manufacturing output.
AUD capitalised on its post Friday retail sales move, jumping higher towards 0.6910 before falling back under the level. The headline 145,000 payrolls number startled markets with most expecting a higher result following the ADP payrolls last Wednesday. As a result, USD fell across the board with most currencies improving against it.
Focus this week will be the signing of the US-China Phase One trade agreement. Market attention will quickly turn to the probability of a Phase Two deal. Given the Chinese New Year is around the corner, the signing of the deal itself may not lead to a lot more follow through in CNY strength. If anything liquidity will be thinner, and some profit taking will probably take place around 6.90. However, the reduction in geopolitical risk and the stabilsation in key Chinese and US data prints should support EM FX.
Governor Carney’s recent admission that the Bank of England is currently debating policy easing means key UK data prints this week could prove explosive for GBP. On Monday, UK Nov Monthly GDP will be released, UK Dec CPI. An upside surprise, however, could come from UK Dec Retail Sales.
December’s US CPI will be key in shaping market expectations for Federal Reserve monetary policy. In November core inflation picked up somewhat on a monthly basis, after softer readings in the months prior. Given favourable base effects from softness in Dec-18, it is likely that the headline "all items" measure will improve YoY, potentially to the fastest pace in over 12 months.
Headline US December Retail Sales may be weighed down somewhat by soft auto sales volumes, which declined 0.2% MoM. Core sales were soft in November, a development that could have been driven by a late Thanksgiving. This could have pushed a greater proportion of holiday shopping into December, providing a boost to December core sales.
AUD opens to a cautious start, just under 0.6900 as Iran political tensions simmer. No major Economic data to digest today – suggest more to come through the middle east weekend political tensions which should keep movements relatively subdued until U.K & U.S tier 1 releases.
AUD rallies sharply above the Jan 8 & 9 highs as well as the 200-DMA (0.6898).
0.6910 gets pierced but no follow through, almost no pull back though.
Daily RSI turns up and suggests bullish momentum in the short-term (21- & 10-DMAs as well as the Jan 7 high remain hurdles for longs).
A break of those resistances should see longs target December's high.
Resistance 0.6919-21, strong @ 0.6940; support 0.6875-80,strong @ 0.6835-50.