OVERNIGHT DATA AND HEADLINES
• The USD rose and global equity markets slumped after a new methodology that sharply increased the death toll in China from the coronavirus unnerved investors and halted a rally that had lifted U.S. and European stocks to record peaks.
• U.S. stocks were mixed with the Dow Jones down 0.10& at 29,521, S&P 500 up 0.12% at 3,383 while the Nasdaq ticked 0.21% higher to 9,634.
• U.S. CPI index (excluding the volatile food and energy components) rose 0.2% in January as Americans paid more for accommodation and apparel, after edging up 0.1% in December. Core CPI was up by an unrounded 0.2423% last month. Underlying inflation in January was also lifted by increases in the prices of airline tickets, healthcare, recreation and education. In the 12 months through January, the core CPI increased 2.3%, rising by the same margin for four straight months.
• U.S. initial jobless claims for state unemployment benefits rose 2,000 to a seasonally adjusted 205,000 for the week ended Feb. 8. Economists had forecast claims rising to 210,000 in the latest week. The four-week moving average of initial claims, considered a better measure of labour market trends as it irons out week-to-week volatility, was unchanged at 212,000 last week.
• The U.S. DXY index initially dropped to 98.85 but recouped all losses trading back up towards 99.09.
• EUR plunged 0.30% to more than two-year lows, dropping to ed to 1.0837, the lowest since May 2017.
• GBP made an impressive jump higher from 1.2943 up towards 1.3070 highs.
• China's yuan improved in late NY, falling from 6.9840 towards 6.9720.
• AUD wavered after China reported a steep rise in new coronavirus cases and deaths. After falling to 0.6704, AUD improved back up towards 0.6744 but fell late NY to 0.6725.
• NZD followed, unable to capitalise on previous gains, falling from 0.6465 down to 0.6440.
• AUDNZD saw a small lift up towards 1.0445 but down slightly to 1.0435 into NY close.
• AUDEUR climbed over 0.6200 to reach a 0.6216 high. Back down to 0.6200 into the open this morning.
• U.S. Treasury yields were slightly lower as traders balanced worsening news about the coronavirus epidemic in China with positive U.S. economic reports.
• The U.S. 10-year yield was down less than a basis point at 1.615% after climbing 4 basis points from 1.575% lows. The two-year U.S. Treasury yield climbed up 3 basis points from 1.40% to 1.437%.
• Italy led a rally in euro zone bond markets, with 10-year Italian bond yields hitting four-month lows on growing confidence the ECB will keep monetary policy easy for longer. Italy's 10-year bond yield tumbled as much as six basis points to around 0.86%, narrowing the gap over safer German Bund yields to around 125 basis points. Germany's benchmark 10-year Bund yield was last down 1 basis point at -0.39%.
• Gold prices jumped to their highest in more than a week after a sharp increase in the number of new coronavirus cases in China renewed fears. Spot gold rose 0.8% to $1,577 per ounce, its highest since Feb. 4.
• China's iron ore futures rose for a third session as spot prices rallied to three-week highs after miner Vale SA downscaled its production outlook for the first quarter, but concerns over the coronavirus death toll kept gains in check. Despite weak demand, spot iron ore prices scaled a fresh three-week peak, with the benchmark 62% grade settling at $88.50 a tonne. Iron ore supply to China from Australia have slowed, with shipments from Port Hedland terminal, the world's biggest iron ore port, falling 18% in January from the prior month.
• Copper and other industrial metals prices rose as traders shrugged off more coronovirus cases. Benchmark LME copper ended 0.5% higher at $5,790 a tonne. Prices are down nearly 10% from four weeks ago.
• Oil prices edged higher as investors hoped the world's biggest producers would cut output more, while they largely shrugged off forecasts of slumping demand due to the coronavirus outbreak in top oil importer China. Brent crude was up 58 cents, or 1.04%, at $56.37 a barrel while U.S. WTI crude was up 40 cents, or 0.8%, at $51.57 a barrel.
ECONOMIC DATA TODAY
• No Australian Economic data releases today.
• NZ - Jan food price index (last –0.2%). Seasonal bounce in fruit and vegetable prices. Jan REINZ house sales (last –1.7%). Tight listings limiting sales, but low interest rates are boosting demand.
• Europe - Dec trade balance €bn (last 19.2). Challenging global backdrop to remain in place.
• Europe - Q4 GDP (last 0.1%, forecast 0.1%). Second release, will provide some underlying detail.
• US - Jan import price index (last 0.3%, forecast –0.2%). Dollar's strength holding down import costs.
• US - Jan retail sales (last 0.3%, forecast 0.3%). A beat likely after two disappointing prints.
• US - Jan industrial production (last –0.3%, forecast –0.3%). Manufacturers to remain under pressure for some time.
• Feb Uni. of Michigan sentiment 99.8 99.8. To remain above average.
Despite another heightened concern around the coronavirus AUD remained resilient overnight, trading up towards 0.6744 highs before giving up around 20 basis points to open this morning at 0.6724.
Yesterday’s latest virus update from China increased investor fears that the spread was intensifying, which generally would have seen risk sensitive AUD react with selling interest. Instead, bulls made a show of strength when AUD dipped below the 10-DMA (0.6713), resulting in a sharp bounce that brought it back towards near flat on the day. Investors could be looking past the virus headlines and focusing instead on measures being taken to diminish the outbreak's effect on Chinese growth. China's President Xi Jinping said that China will definitely be able to minimise the virus' impact on the economy. The PBOC has injected a massive amount of liquidity into the system, which is likely helping to boost commodities such as copper and iron-ore futures prices. The Australian economy continues to be highly impacted by those commodities and the knock-on effects of their gains are probably helping to keep AUD buoyed.
No Australian data today – focus will shift offshore tonight for tier 1 releases in Europe and the U.S.
For the AUD, technical outlook continues to highlight upside risks for AUD. With the exception of any further coronavirus news or outbreaks, AUD remains on track to break through 0.6745 and challenge the 21 day moving average at 0.6768. A junction exists at this level with the top of the recent downtrend also creating resistance.
AUD longs like price action despite bearish risks. AUD buoyed in early NY despite latest increased virus concerns.
The dip below 10-DMA (0.6713) short lived; risk assets rally, AU-US spreads tighten. AUD lifts above 0.6745 but longs lose steam. Copper futures gains erode a bit, USD/CNH lifts, AUD nears 0.6720.
The current lack of downside for AUD in encouraging for longs. RSI is rising, the 10-DMA is helping to limit any downside moves and a long lower wick formed on today's candle. AUD longs are not fully in control though. The Jan. 29 and Feb. 5 daily highs and the 21-DMA loom. A break of those resistances would strengthen the hand of longs. 0.6775/80 zone needed.