Equity markets remained upbeat, anticipating supportive earnings reports. The S&P500 is up 0.3% to a fresh record high, and bond yields are higher, although the US dollar also rose. US 2yr treasury yields rose from 0.20% to 0.24%, while the 10yr yield rose from 1.32% to 1.37%. Commodities, Brent crude oil futures fell 0.4% to $75, copper fell 0.4%, and gold fell 0.1%. Iron ore rose 0.8% to $216.
ECB’s de Guindos reiterated familiar themes: the economy’s recovery, balanced risks, inflation risks temporarily higher in 2021, and further support still needed. He did add that the transition of policy including asset purchases would be decided in the near future, implying potential for forward guidance to change at the ECB’s meeting next week.
FOMC member Kashkari spoke of a strong recovery which would improve the labour market in the fall, but also that some 7-10 million Americans are out of work and that improvement here is required for normalisation of policy begin. Williams said both Treasury and MBS purchases are both affecting the cost of housing. He would not predict when the Fed might start to reduce asset purchases, but did say that the conditions have yet to be reached.
AUD/USD seesaws around 0.7480, following a quiet week-start around yearly low, during early Tuesday morning in Asia. The pair fails to cheer fresh record tops in equities amid the coronavirus (COVID-19) at home and a lack of major catalysts, which in turn highlights today’s China trade numbers and US Consumer Price Index (CPI) for fresh impulse.
With the highest new confirmed cases in over 10 months, around 120 per ABC News, Australia’s covid-led activity restrictions are likely to be stretched. Conditions in the New South Wales (NSW) become worrisome, pushing PM Scott Morrison, NSW Premier Gladys Berejiklian and other policymakers towards an aid package discussion overnight.
US looks to cautiously easing the virus-led activity restrictions while authorities from the UK confirm July 19 unlock even as virus cases jump of late. Alternatively, New York Federal Reserve President John Williams said, per Reuters, “The US economy has not achieved the 'substantial further progress' set by the US Federal Reserve to start reducing asset purchases.” His comments solidify the hopes of extended easy money and favoured equities.
Against this backdrop, earnings optimism favoured US equity benchmarks to refresh record tops whereas the US Treasury yields also added 1.2 basis points (bps) by the end of Monday’s North American session.
Moving on, National Australia Bank’s (NAB) Business Confidence and Business Conditions figures for June, coupled with China’s Trade Balance, Imports and Exports for the said month will be the key data in Asia, followed by the US CPI for the last month. While NAB data may print mixed results, likely weakness in Chinese trade numbers, coupled with the COVID-19) woes may continue weighing on the AUD/USD prices. Though, the expected announcement of fiscal stimulus for NSW may offer an intermediate bounce to the pair.
The AUD/USD traded in a 0.7448/.7495 range overnight with demand still expected ahead of 0.7400 while offering interest remains steady between 0.7500 and 0.7600.
Event Risk Data Today
Australia: The NAB business survey surged to a record +37 in May. Such an elevated read suggests we could see a pullback in the June update.
New Zealand: We expect a 0.7% rise in the June food price index, with a seasonal lift in fruit and vegetable prices. REINZ house sales have softened in recent months, but remain above pre-Covid levels. Indicators for June have so far been mixed. Listings data suggest a further drop in sales, but loan demand has been strong and auction clearance rates have picked up again.
China: The trade balance is expected to hold around USD 44.75bn in June – exports are gradually stabilising, but remain elevated.
US: The market will be closely watching the June CPI. We are looking for another strong “reopening” print of 0.5%mth, which should see the annual pace hold at around 4.9%. The June monthly budget statement will remain volatile on waves of stimulus. The June NFIB small business optimism survey will give insight into the price pressures and firms’ hiring intentions (market f/c: 99.5). Finally, FOMC members Kashkari, Bostic and Rosengren will speak jointly.