OVERNIGHT DATA & HEADLINES
• US headline August CPI rose 0.1% m/m (1.7% y/y), restrained by a 1.9% fall in the energy component. Core CPI beat expectations, rising 0.3% m/m (2.4% y/y). This is the third consecutive month where core CPI has come in at 0.3% m/m, with the 3m annualised rate at 3.6% the highest since 2006 (and the highest annual core inflation since 2011). Medical care and shelter were the biggest drivers, but the broad-based increase suggests the period of weak inflation has passed, bringing into question how far the Fed can cut.
• US stocks higher in the supposed de-escalation U.S.-China trade tensions as well as the prospect of a new easing cycle on the back of the fresh round of stimulus measures by the European Central Bank. Dow Jones finished 45 points higher (+0.2%) @ 27,182, S&P 500 added around 9 points (0.3%) @ 3,010, Nasdaq @ 8,194, up around 25 points (0.3%).
• The European Central Bank (ECB) announced a stimulus package which included a 10 basis point rate cut to -0.5%, and open-ended QE of €20 billion per month starting November 1st. Bloomberg reported that there was dissent on asset purchases from Germany, France, Netherlands, and Austria. Also introduced was a tiered system for the deposit rate, where a portion of the excess reserves a bank places with the ECB will return a higher 0% interest rate. Forward guidance was changed, the ECB deleting the time horizon on the rate outlook, saying that rates will remain "at their present or lower levels until" the ECB "has seen the inflation outlook converge to a level sufficiently close to, but below 2%.
• Market talks indicated that the EU was preparing to grant the IK another delay to Brexit. According to the leaked document, the European Parliament is planning to offer an extension to avoid a no-deal Brexit.
• US President Trump had a goodwill gesture with China, announcing he postponed the introduction of higher tariffs on Chinese goods meant for October 1 until October 15. Optimism faded throughout the day, as the White House denied the possibility of an interim trade deal to secure agricultural purchases and commitments on IP from China.
• U.S. Treasury prices fell with 10-year yields hitting five-week highs, following a report that suggests advisers to President Donald Trump were mulling an interim trade deal with China and soft demand at a 30-year bond auction. U.S. 10-year note yields were +5 basis points at 1.78% after hitting 1.80%. US 2yr treasury yields were 4bp higher at 1.72%
• German bond yields rebounded and European banking shares were whipsawed as doubts crept in about the effectiveness of the ECB's decision to cut interest rates and pledge an indefinite supply of asset purchases. Italy's 10-year bond yield fell to a record low at 0.76%, pushing the gap over German peers to 136 basis points -- its tightest since May 2018 while German long-dated bonds saw yields tumble as much as 11 basis points on the day.
• Australian 3yr government bond yields rose from 0.88% to 0.92%, the 10yr yield from 1.14% to 1.18%. Markets are pricing 6bp of easing at the 1 October RBA meeting.
• Market pricing for RBNZ is for 3bp of easing on 25 September, with a terminal rate of 0.64%.
• Dalian iron ore futures climbed nearly 4% to their highest in five weeks, extending gains in anticipation of some restocking demand for the steelmaking raw material ahead of holidays in China. The most-traded iron ore on the Dalian Commodity Exchange rose as much as 3.9% to 681 yuan ($96.08) a tonne, its highest since Aug. 7.
• Copper jumped to its highest level in six weeks after the U.S. said it would delay imposing a new round of tariffs on China, raising hopes of a thawing of tensions that could bode well for demand for the metal. Benchmark LME copper gained 1% to $5,832 a tonne after touching its highest level since Aug. 1 at $5,898.
• Oil prices fell about 1% after a media report cast doubt on the possibility of an interim U.S.-China trade deal and as a meeting of the OPEC+ alliance yielded no decision on deepening crude supply cuts. Brent crude futures settled at $60.38 a barrel, shedding 43 cents (0.71%). WTI crude futures settled at $55.09 a barrel, losing 66 cents (1.18%).
• The US dollar index is down 0.3% on the day, ending @ 98.35 from 99.10.
• EUR was volatile, falling from 1.1020 to 1.0927, but rose higher to close 1.1064.
• USD/JPY initially dipped to 107.52 before rising to 108.9 – a six-week high.
• AUD saw fresh highs, rising to a six-week high of 0.6894 before closing back lower to 0.6865.
• NZD similarly rose to 0.6451 before falling to 0.6400.
• AUD/NZD extended its multi-week rise, from 1.0690 to 1.0724 – the highest since 8 May.
• AUD/EUR saw a flash high at 0.6286 but fell lower on EUR strength back towards 0.6200.
EVENT RISK TODAY
• No Australian Economic data releases today.
• NZ: Manufacturing PMI slipped into contractionary territory in July. REINZ housing data for August should be out.
• U.S: Aug retail sales are expected to rise 0.2% and control group sales are seen to increase 0.3% following respective gains of 0.7% and 1.0% in Jul.
• U.S: Consumer sentiment indicators softened in August, so the sales figures will be closely watched to see if this has already influenced spending decisions. In that respect, Sep University of Michigan Consumer Sentiment preliminary estimate is also released tonight.
AUD thoughts :
AUD held onto strong intraday gains overnight, trading to a fresh 0.6894 high and just short of revisiting the psychological 0.6900 resistance level.
After the previous session's late pullback, AUD managed to catch some fresh bids and remained well supported by encouraging US-China trade developments. President Trump announced to delay the decision to impose an extra 5% tariffs on $250 billion worth of Chinese goods by two weeks to Oct. 15, which eventually underpinned the China-proxy Australian Dollar.
No Australian economic data releases today – attention will once again shift offshore to U.S. data releases.
Technical outlook :
AUD slides in early NY as JPY buys drive AUD/JPY lower, 0.6863 trades. Bounce ensues as global bond yields rally after ECB inject stimulus. Sharp rally near 0.6900 as risk rallies on trade headlines. Trump admin denies inter deal, risk sinks AUD nears 0.6865. Stocks & yields remain buoyed though, AUD lifts above 0.6880 late. AUD is trading in a bear trend below its 100 and 200-day simple moving averages (SMAs). However, the market had a sharp rebound in September as the market hit the 50 SMA at the 0.6855 level. Tech lean bullish, RSIs rise, cloud top pierced, new short term high is set.