15th January 2020 - Markets cautious ahead of US-China trade deal details



Good morning


OVERNIGHT DATA AND HEADLINES


• Equity markets traded little changed globally as investors awaited the signing of the China-U.S. trade deal. China has pledged to buy almost $80 billion of additional manufactured goods from the U.S. States over the next two years as part of a trade war truce. China would also buy over $50 billion more in energy supplies and boost purchases of U.S. services by about $35 billion over the same two-year period.

• U.S. CPI index increased 0.2% in December after climbing 0.3% in November. The monthly increase in the CPI has been slowing since jumping 0.4% in October. In the 12 months through December, the CPI rose 2.3%. That was the largest increase since October 2018 and followed a 2.1% gain year-on-year in November. Excluding the volatile food and energy components, the CPI edged up 0.1% after climbing 0.2% in November.

• On Wall Street, the Dow Jones rose 0.27% to 28,985, S&P 500 up 0.02% to 3,288, Nasdaq up 0.02% to 9,275.


CURRENCIES


• The U.S. DXY index initially rose towards 97.56 highs but retraced all gains back down towards 97.35.

• China's CNY was slightly weaker after earlier hitting a 6.8650 high last seen in July. CNY edged back up towards 6.8865.

• EUR fell down to 1.1100 lows but was back up towards 1.1130 late in the session.

• GBP was best performer of the night, jumping up 0.26% from 1.2950 to 1.3035.

• USDJPY traded within a 109.90 / 110.15 range.

• AUD remained glued around the 0.6900 level, dropping to 0.6890 low and 0.6909 high.

• NZD fell from 0.6634 highs to 0.6601 lows.

• AUDNZD saw a bounce higher from 1.0400 levels up towards 1.0447 highs.

• AUDEUR was back above 0.6200 reaching a 0.6216 high.


TREASURIES


• U.S. Treasury yields were little changed as markets took stock of a moderate rise in U.S. consumer prices and the expected signing of a trade deal between the U.S. and China.

• U.S. 10-year yield was down 3.2 bp at 1.817% after beginning the session little changed. U.S. 2 year yield was down less than a basis point at 1.576%.

• European 10-year government bond yields inched down - Germany's 10-year bond yield was down almost 2 basis points at -0.21%.

• Australian 3yr government bond yields drifted back to 78bps and 10yr futures implied a 3bps back to 1.22% again.


COMMODITIES


• Gold fell ahead of the much awaited signing of an interim U.S.-China trade deal - Spot gold dipped 0.3% to $1,545 an ounce after touching its lowest since Jan. 3 at $1,535.63.

• China's iron ore futures rose, rebounding from a three-session slump on worries over possible disruption in shipments from Australia, where the cyclone season has begun. The spot price of benchmark 62% iron-content ore for delivery to China was steady at $94.70 a tonne.

• Copper prices reached their highest in eight months on the back of better than expected trade data in China. LME copper ended up 0.2% at $6,302 a tonne after touching $6,314.50.

• Brent crude oil rose to more than $64.50, recovering from 4 days of declines on easing Middle East tensions. Brent crude up 43 cents (0.7%) to $64.63 a barrel. U.S. WTI crude rose 11 cents (0.2%) to $58.20 a barrel.


ECONOMIC DATA TODAY


• No Australian Economic data today

• NZ Dec food price index (last –0.7%). Annual inflation has picked up.

• Europe - Nov industrial production –0.5% 0.4% – Manufacturing the key area of weakness

• UK Dec CPI %yr (last 1.5%, market f/cast 1.5%). Stronger GBP should keep inflation below target.

• US Dec PPI %yr (last 1.1%, market f/cast 1.3%). Inflation pressures largely absent across economy..


AUD THOUGHTS


AUD remained relatively cautious overnight, trading within a 20 point range and using 0.6900 as pivotal point.

Currencies saw some mild gains following the mildly disappointing U.S. CPI data release, U.S. treasury yields fell whilst commodities remained mixed.


No Australian Economic data releases today – main focus will divert offshore towards U.K. (December CPI) and U.S. (December PPI).

The Phase 1 U.S. / China trade deal will also be signed today in Washington. The numbers are expected to be announced at the White House signing ceremony between Trump and Chinese Vice Premier Liu He and represent a staggering increase over recent Chinese imports of U.S. manufactured goods. The size of the targets has raised questions about how realistic they are.


For the AUD, not expecting much deviation from current levels with 0.6890 supporting and 0.6920 capping.


TECHNICAL OUTLOOK


AUD dip below the 200 day moving average (0.6890) short lived.

AUD continues to hold above the rising 55-DMA & key 0.6840/50 support

Resistance remains at 10 & 21-DMAs above as does big 0.6920/40 resistance zone. Monthly RSI remains centred awaiting a move either direction.

If AUD can hold ground above the 200-DMA chance of 0.6920/40 break grows. Longs will target December's high on a move above 0.6940



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