15th April 2019 - Strong Chinese Data improves risk-sentiment

Overnight Headlines

· Risk on sparked by China trade and credit data on Friday continues during the overnight session

· S&P 500 closes higher for 3rd week in a row, and above 2900 for the first time in 6 months. US Financials top performers aided by solid JP Morgan results

· Softer US Consumer sentiment not enough to sour the mood

· USD lower on diminishing safe haven demand. AUD closes above key technical levels. Euro fails to hold move above 1.13, but start the new week above the figure

· Copper leads the gains in commodities while UST Yield curves steepens - 10y UST yields closed the week at 2.56%

· Mnuchin says enforcement mechanism could work in both directions. Signalling material progress in US-China trade talks

· Draghi worried about the Fed. Defends need for independence - Meanwhile Trump has another go at the Fed

· AU RBA board minutes, labour force; NZ CPI; China GDP, monthly activity indicators; US reporting season continues; EZ flash PMIs; and UK CPI


Currencies

· The US dollar index closed down 0.2% on the day, ending @ 96.92

· EUR round-tripped from 1.1295 to 1.1325 and back

· USD/JPY rose from 111.60 to 112.10, the defensive yen the worst performer

· Outperformer AUD was helped by better global sentiment, rising from 0.7130 to 0.7192 – the highest since late Feb

· NZD rose from 0.6730 to 0.6781

· AUD/NZD extended a three-week old rally to 1.0625 – the highest since 22 Jan.

· AUDEUR managed to benefit from the AUD rise, trading up towards 0.6348 highs


AUD flat lined near a six-week peak as losses on Asian share markets chilled risk sentiment somewhat. AUD eased back towards 0.7157, having run into stiff resistance around 0.7190 overnight. It was still ahead for the week but needs to break the February top of 0.7207 to keep the rally going. AUD remains supported by an unwinding of expectations for a near-term cut in interest rates. Doves had been disappointed last Wednesday when the Reserve Bank of Australia (RBA) Deputy Governor Guy Debelle stopped well short of expressing any easing bias, instead saying it would take time to see how the economy evolved.

AUD has tended to see upside risks in the near term on the basis that iron ore should have been above $90 given Vale/ Rio developments; that Australian miner dividends declared in USD have been a source of support for the AUD and that the RBA was likely to push against aggressive rate pricing. However, the move above $90 on 62% iron ore has also seen price discounts for 58% ore narrow to some of the lowest levels seen since 2016 making domestic Chinese iron ore production more attractive – something that we see driving a correction in prices in the months ahead.


Also of note that the last of the Australian miner dividends declared in USD has currency conversion date as 11th April and while RBA Deputy Governor Debelle did not appear to support market pricing for rate cut(s), fully expect to see forecasts at the SoMP in 4 weeks reflect a shift in risks. Thus, current strength towards 0.7175/0.7200 remains an opportunity to sell into AUD strength.


Technical Outlook

AUD challenges strong resistance @ 0.7184-94 on positive risk sentiment. Slew of upbeat data pointing to stabilisation of China economy lifts mood. Waning global growth pessimism , gains in commodities & stocks underpin.

Then China GDP on Wednesday & Australian employment data on Thursday crucial for direction. Minutes of April RBA board meeting Tuesday watched as doves pare rate bets.

A close above 61.8% of the Jan-Mar fall @ 0.7184 & 200-DMA @ 0.7194 remain bullish signals.


Risk Events

The week ahead begins on a quiet note with not a lot to highlight from the economic calendar today. US reporting season will be the focus tonight ahead of important data releases later in the week. The RBA board minutes on Tuesday and labour market data on Thursday are the key domestic event. NZ CPI is out on Wednesday ahead of the all-important China activity readings and Q1 GDP. Then attention will likely turn to Europe with the April flash PMIs due out for release on Thursday.

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