Overnight Market Headlines
- US President Trump’s trade comments dominated markets again, overnight tweeting: “When the time is right we will make a deal with China. My respect and friendship with President Xi is unlimited but, as I have told him many times before, this must be a great deal for the United States or it just doesn’t make any sense,” He said he’ll meet with President Xi at the next G-20 summit (28-29 June), and that there is a "very good dialogue going" in response to questions about whether trade talks with China are collapsing
The chance of a Fed rate cut by December, implied by Fed fund futures, remained above 100%.
- The chance of a Fed rate cut by December, implied by Fed fund futures, remained above 100%.
- Gold retreated from a 1 month high as stock markets and the USD took heart after the U.S. and China agreed to keep negotiations going to end their prolonged trade war. Spot gold was 0.3% lower at $1,295.18 per ounce after hitting $1,303.26.
- Chinese steel futures slumped to their lowest in more than five weeks as worries persist about demand amid heightened U.S.-Sino trade tensions, even as the two sides expressed optimism in resolving their dispute.
- Copper rebounded as investors emboldened by solid supply and demand fundamentals sought bargains after tit-for-tat trade tariffs between the U.S. and China triggered a fall in prices. LME copper ended 0.3% up at $6,027 a tonne after touching a 15-week low the previous day.
- Oil prices rose over 1% after top exporter Saudi Arabia said explosive-laden drones launched by a Yemeni-armed movement aligned to Iran had attacked facilities belonging to state oil company Aramco. That move higher comes as the market waits for a report from API which is expected to show U.S. crude stockpiles fell by 800,000 barrels last week. Brent futures gained $1.01 (1.4%) to settle at $71.24 a barrel, U.S. West Texas Intermediate crude gained 74 cents (1.2%) to $61.78.
- The US dollar index is up 0.2% on the day, closing at 97.53
- EUR fell from 1.1240 to 1.1205
- USD/JPY ranged between 109.40 and 109.50
- AUD probed slightly lower at 0.6935 – a two-year low
- NZD slipped from 0.6590 to 0.6572
- AUD/NZD dipped to 1.0546 before rebounding to 1.0565
- AUD/EUR dipped to 0.6170 lows but made a small bounce back up towards 0.6200
The AUD was stuck near multi-month lows overnight as China's reprisal for U.S. tariffs shook markets globally and stoked speculation about interest rate cuts at home.
AUD was pinned at 0.6945, having sunk 0.8% to as deep as 0.6935, the lowest since the flash crash of early January 2019. The last time it spent more than a day down at these levels was in early 2016.
The losses came after Beijing announced a retaliatory tariff move against U.S. imports, following the United States' move last week to sharply increase levies on Chinese imports.
Further bearish news came yesterday from the latest survey of Australian businesses from NAB which showed sales, profits and employment deteriorated in April. The weakness in hiring would be alarming to the RBA which only recently signalled that it might cut rates if the labour market were not to remain healthy.
A slight thaw in U.S.-Sino trade tensions and action from the PBOC on persistent CNY weakness have helped stem AUD's slide for now. Indeed, AUD bears should be especially concerned with CNY weakness and how the PBOC might react.
The central bank is leery that a 7.0000 break for USD/CNH (currently at 6.8737) could induce capital outflows from China. Recent USD/CNH approaches to 7.000 met stiff resistance and faced steady bear pressure thereafter. Thus, should the PBOC buoy the yuan and trade tensions ease further, AUD shorts could get squeezed. A test of 0.7065/70 and 0.7150/60 resistance zones would then be likely.
Today’s Australian data releases shouldn’t cause too much concern for the AUD with consumer sentiment & Q1 wage price index data. Majority of the direction this week focused on offshore events however note that tomorrow we have Australian jobs data to digest.
Technical Outlook :
Downside miss the US exp/imp prices sink bond yields & risk in early NY. AUD hits a new 4-month low on data, losses can't hold. Stock rally extend & bond yields bounce on Trump trade headline.
AUD bounces from the 61.8 Fibonacci level (0.6936) of the 0.6715-0.7295 range, lifts above 0.6950 late NY. Upward shift in risk & PBOC action could drive AUD gains.
Risk Event Data Today
- Australian Economic data today : May Westpac-MI consumer sentiment was last at 100.7, indicating optimists and pessimists were broadly evenly balanced. Q1 wage price index is expected to rise 0.6% with the annual rate holding at 2.3%.
- China: Apr NBS monthly data release will provide updates on fixed asset investment, industrial production and retail sales. This month’s release will be important in gauging whether signs of stabilisation are being sustained.
- Euro Area: Q1 GDP 2nd estimate follows a flash read of +0.4% and will contain information from the majority of national releases.
- US: Apr retail sales are anticipated to rise 0.2% following the 1.6% surge in Mar. Apr industrial production is expected to be flat. May NAHB housing market index is released.
- Fedspeak involves Quarles to the Senate Banking Panel and Barkin in NY.