OVERNIGHT DATA AND HEADLINES
• World stocks edged lower and debt yields fell as Chinese economic data slowed in October and Germany narrowly avoided a recession in the third quarter, adding to concerns about the impact of the U.S.-China trade war on global growth.
• U.S. producer prices increased by the most in six months in October, lifted by gains in the costs of goods and services. The Labour Department said its producer price index for final demand rose 0.4% last month, the biggest increase since April, after falling 0.3% in September. In the 12 months through October the PPI climbed 1.1%, the smallest increase since October 2016, after advancing 1.4% in September. Annual producer inflation retreated as last year's hefty gain dropped out of the calculation.
• Federal Reserve Chair Jerome Powell on Thursday said the risk of the U.S. economy facing a dramatic bust is remote in part because the record-long expansion is notable for not having pockets of overheating activity. Powell, appearing before U.S. lawmakers for a second day, reiterated his view that the current expansion appears on a sustainable footing, with few indications of an imminent downturn despite risks from the long-running U.S.-China trade war, a slowdown in business investment and weakness abroad. "The U.S. economy is the star economy these days," Powell told the House Budget Committee. "We're growing at 2%, right in that range, more than any of the other advanced economies are growing. There's no reason that can't continue." Asked if there were any excesses that threatened to torpedo the expansion, Powell said: "Look at today's economy. There's nothing that's really booming that would want to bust in other words." "It's a pretty sustainable picture."
• China's factory output growth slowed significantly more than expected in October. Chinese industrial production growth slowed sharply in October, with the 4.7% year-on-year rise well below forecasts for 5.4%. Investment growth hit a record low and retail sales also missed expectations.
• Worries about spiralling violence as anti-government protests intensify in Hong Kong have also soured investor sentiment. Protesters paralysed parts of Hong Kong for a fourth day, forcing school closures and blocking highways and other transport links in a marked escalation of unrest in the financial hub.
• U.S. stocks slipped, weighed down by technology shares. Dow Jones fell 37 points (0.13%) to 27,746, S&P 500 lost 1.41 points (0.05%) to 3,092 and Nasdaq dropped 12.35 points (0.15%) to 8,469.
• The U.S. dollar index fell 0.22%, down from 98.40 towards 98.10 lows.
• EUR was up 0.15% from 1.0988 to 1.1025.
• GBP strengthened from 1.2835 up towards 1.2885.
• JPY strengthened 0.41% vs. the USD at 108.30 (from 108.60).
• The Swiss franc (CHF) traded at 0.9880 (also near its highest in more than a week).
• China's yuan was largely flat in thin trade - opened at 7.0240 and was changing hands at 7.0225.
• AUD skidded to a one-month low dropping to 0.6767 lows but finding some interest higher towards 0.6790.
• NZD also fell on the back of a lower AUD, dropping from 0.6390 down towards 0.6357.
• AUDNZD bounced from 1.0605 lows back up towards 1.0667 highs.
• AUDEUR continued its fall from 0.6180 down towards 0.6145.
• U.S. Treasury yields fell on Thursday as investors reassessed the likelihood that the U.S. and China are close to reaching a deal to de-escalate their trade war and as bonds retraced last week’s selloff.
• Benchmark 10-year note yields fell to 1.815%, from 1.869% late Wednesday. Two-year note yields fell to 1.59%.
• Ten-year bond yields across the euro area fell around 2 basis points each. Germany, French and Dutch yields reached one-week lows. France's 10-year bond yield slipped back into negative territory a week after it turned positive for the first time since July. Germany's Bund yield fell to a low of -0.353%, down from last week's three-and-a-half-month low around -0.22%.
• Gold rose, moving further away from a three-month low hit earlier this week, helped by uncertainty in U.S.-China trade ties that dented demand for riskier assets. Spot gold rose 0.5% to $1,470.68 per ounce.
• China's steel futures rose to a near seven-week peak on renewed demand after the government made a move to boost infrastructure projects and as new construction starts surged. Prices for spot cargoes of benchmark iron ore with 62% content for delivery to China recovered to $81 a tonne.
• Copper prices fell to two-week lows as weak manufacturing and investment data from China fuelled concerns about demand in the top consumer and expectations of lower interest rates in the U.S. receded. Benchmark LME copper ended down 0.4% at $5,812 a tonne having touched a session low of $5,807.
• Oil slid as a build in U.S. crude inventories weighed on prices, while comments from OPEC about lower-than-expected U.S. shale production in 2020 limited declines. Brent crude futures settled down 9 cents to $63.40 a barrel, while U.S. West Texas Intermediate (WTI) crude fell 35 cents to settle at $56.77 per barrel.
• Australian Economic Data today – 2018/19 Annual State Accounts - RBA Deputy Governor Debelle.
• Europe – September trade balance (remains in surplus even after trade slowdown). October core CPI.
• U.S. – November Fed Empire state index. October import price index
• U.S. – October retail sales (last -0.3%, forecast 0.2%). September was disappointing. Growth hence to be volatile.
• U.S. – October industrial production (last -0.4%, forecast -0.3%). U.S. manufacturing likely to remain weak for some time.
Yesterday’s selling pressures in the AUD continued overnight towards 0.6767 lows however a late bounce into NY close saw it back at 0.6790.
A quiet day ahead on the data calendar with local investors’ attention now firmly focussed on any developments form the ongoing trade negotiations between China and the U.S. Recent rhetoric has been somewhat concerning with constant news of issues holding up an agreement on phase 1 of the trade deal.
Domestically pressure is increasing on the Government to commit to fiscal easing following the disappointing jobs numbers yesterday. With interest rates already at record lows RBA Governor Lowe will hope his call for more Government spending are heeded as the impact of further monetary easing diminishes. Morrison and Frydenberg however remain publicly committed to delivering a budget surplus.
Short-term rates markets had recently been paring back expectations for rate cuts for both the RBA and Fed but sentiment has shifted again, to the detriment of AUD longs.
The probability for a 25 bps RBA cut in December has climbed to near 30% while U.S. short-term rates markets are pricing in a 25bps Fed cut for September 2020. The altered expectations, especially for the RBA, along with other factors have AUD longs concerned. Downbeat October Australian and Chinese data have increased investors' fears of deteriorating global growth, which is highly influential on AUD. The data drove Australian government bond yields sharply lower through key 1.2% support, weighing down AUD. Further weight come from concerns that U.S.-Sino trade talks are deteriorating. Should talks fail AUD is likely to fall much further. AUD's price action is bolstering already bearish technicals.
AUD Fibonacci holds risk-off sales for now. Downbeat Australian, Chinese data, trade talk concerns keep AUD heavy in New York.
Daily cloud top pierced as drop in AU yields & soured risk weigh - slide stalls near 61.% Fib of 0.6670-0.6929, meagre bounce, near 0.6785 late.
AUD below 55 day moving average & cloud top, RSIs fall, technical say downside risks remain.
Shift in market's central bank views is a concern for longs. Key US data in focus, if upbeat AUD slide is likely to extend.
Tests of 0.6750/55 and 0.6710/25 support as well as 2019's low look likely.