OVERNIGHT DATA & HEADLINES
• The USD recovered from early weakness but a gauge of world equity performance edged lower as concerns about global growth offset investor optimism over a surge in U.S. retail sales last month and strong Walmart earnings.
• UK retail sales rose 0.2% m/m in July, beating forecasts for a 0.2% decline, seeing y/y growth down from 3.6% in June to 2.9% in July, though again better than 2.3% forecasts.
• After the UK retail sales print, more US / China headlines hit the wires : China saying that it will have to take counter measures on the US moves, the US action violates the consensus reached in Osaka, and deviates from the right way to resolve the dispute & China's ambassador to the UK saying that the HK events have gone "way beyond" a peaceful protest, and that the current situation is the gravest situation since the handover.
• A range of data released over the NY morning. First up and July Retail Sales rose 0.7% MoM to beat expectations of a 0.3% gain with core measures also easily beating expectations. The Philly Fed Business Survey printed at 16.8 for August, down from 21.8 though better than expectations of 9.5 while Empire Manufacturing for August rose to 4.8, up from 4.3 and better than expectations of 2.0. Q2 Non-Farm Productivity rose 2.3%b to beat estimates of 1.47% while unit Labour Costs rose 2.4% to beat estimates of 2.0%. Weekly jobless claims the only miss with both initial claims and continuing claims a little weaker than expected.
• The second round of US data was largely ignored with little reaction to weaker than expected July Industrial Production and Capacity Utilisation data. A modest beat for the NAHB Housing Market Index in August was also ignored.
• Fed/s Bullard speaking over the NY afternoon and saying that the fundamentals of the US economy were pretty good though the current environment was one of a global slowdown and the Fed would need to watch for fallout with policy needing to be forward looking amidst low inflation. No reaction to the comments with markets fairly subdued.
• The S&P 500 and the Dow gained ground in a late rally as upbeat retail sales data offset recessionary fears and simmering U.S.-China trade tensions. Dow Jones rose 99.9 points (0.39%) to 25,579, the S&P 500 gained 7.02 points (0.25%) to 2,847 and the Nasdaq dropped 7.32 points (0.09%) to 7,766.
• Australian shares are expected to open lower on Friday as worries of global recession and China's warning of retaliation against U.S. tariffs is likely to dampen investor sentiment. The local share price index futures fell 0.5%, a 65.1-point discount to the underlying S&P/ASX 200 index close. The benchmark fell 2.9% on Thursday.
• U.S. 30-year Treasury yields fell to a record low below 2% and benchmark 10-year notes dropped to a three-year trough. Yields on the U.S. benchmark 10-year Treasury note hit three-year lows of 1.475%. Ten-year yields were last down 1.52%, from 1.58% late on Wednesday.U.S. 2 year yields dropped 10bp @ 1.58%.
• Gold prices rose as lingering fears over a global economic downturn and lack of clarity on the U.S.-China trade front persisted. Spot gold was up 0.4% at $1,521.47 per ounce.
• Steel futures in China extended gains as market participants hoped Beijing would roll out more measures to stimulate the slowing domestic economy amid fears about a global recession. Rallying for a fourth straight day, the most-traded October 2019 contract for hot-rolled coil ended up 0.7% to 3,722 yuan ($529.78) a tonne, its strongest finish since Aug.2.
• Copper slipped after China said it would hit back against additional U.S. tariffs, fuelling fears over global growth and metals demand. Benchmark LME copper shed 0.2% to $5,751 a tonne after dropping as far as $5,640 this month, setting a two-year low.
• Oil prices fell more than 1%, extending the previous session's 3% drop, pressured by mounting recession concerns and China's threat to impose counter-measures in retaliation for the latest U.S. tariffs on $300 billion of Chinese goods. Brent crude fell as much as $1.81, or 3%, to $57.67 a barrel. WTI crude settled down 76 cents, or 1.4%, to $54.47.
• The USD recovered from early weakness against JPY to advance modestly as better-than-expected U.S. retail sales data tempered concerns that the U.S. economy could be headed for a recession.
• USDCNY edged lower as optimism around recovering U.S.-China trade relations waned with no clear signs of fresh progress. USDCNY traded at 7.0295
• AUD struggled under the weight of worldwide economic anxiety even as domestic data showed jobs jumped past expectations in July. AUD edged up to 0.6780, from an early low of 0.6747.
• A mysterious spike seen in USD/JPY, shooting up 90 points to 106.79 highs. No news attributable to the move, though some discussion that a sharp increase in CME JPY contract volumes at the same time may have been responsible for the move. But without any real news attached to the move, it rapidly reversed. USD/JPY peeled back to 106.20 levels.
• EUR fell a little to trade down to 1.1134 though this merely extended the daily range to 24 points.
• USD/CAD moved to highs above 1.3330 with better than expected Existing Home Sales data from across the border generally ignored.
EVENT RISK TODAY
• No Australian Economic data releases today
• NZ – July Business NZ Manufacturing PMI for July (businesses are reporting weak trading conditions)
• Europe – trade balance for June (surplus has narrowed but is still large).
• US – housing starts & building permits for July and also Univ of Michigan Sentiment prelim for August
AUD thoughts :
Yesterday’s upbeat employment data results failed to inspire bulls overnight with longs frustrated with the lack of upside follow through after the rather impressive jobs report.
AUD was stable overnight despite the action seen in other asset classes. A quiet day ahead on the data front with attention again likely to focus on the China fix at 11.15am Sydney time while interest will also resume on Asian markets as they continue to digest this week’s volatility in the Norther Hemisphere. De-escalation in US-China tensions this week have seen trade talks back on the agenda although with the ongoing protests in Hong Kong and the ever present possibility of a tweet from President Trump investors are still cautious about the possibility of any long term solutions.
Commodities remain heavy while emerging currencies struggle to gain.
For the meantime AUD is still up on the day but struggles to hold above 0.6780. Demand likely remains stationed ahead of 0.6700 while topside resistance is expected at 0.6820 which has provided a cap in recent trade.