OVERNIGHT DATA AND HEADLINES
• China and the United States agreed on an initial trade deal that rolls back some U.S. tariffs in exchange for China's increased purchase of farm goods, cooling a contentious trade war. The "phase one" agreement came just ahead of a deadline on Sunday for a new round of U.S. tariffs on almost $160 billion of Chinese imports. The 17-month-old trade dispute has roiled financial markets and taken a toll on world economic growth. Beijing agreed to buy $32 billion in additional agricultural goods over the next two years, up from a baseline of $24 billion purchased in 2017, before the trade dispute started. U.S. President Trump said he thought China would hit $50 billion in agricultural purchases.
• GBP gained following Johnson's win of a commanding majority in Britain's Parliament, giving him the power to deliver a clear exist from the European Union, though trade talks are set to drag on for months, if not years. UK shares exposed to Britain's economy surged, with the benchmark FTSE 100 index gaining more than 2% at one point as the rally offset the drag from a jump in sterling.
• U.S. stocks ended little changed hitting record highs in the session. Dow Jones rose 3 points (0.01%) to 28,135, S&P 500 up 0.23 point (0.01%) to 3,168, Nasdaq up 17 points (0.2%) to 8,734.
• U.S. retail sales increased less than expected in November as Americans cut back on discretionary spending despite a strong labour market. Retail sales rose 0.2% in November. Data for October was revised up to show retail sales increasing 0.4% instead of climbing 0.3% as previously reported. November's sales gains were meagre despite reports from retailers of brisk Black Friday business. Excluding automobiles, gasoline, building materials and food services, retail sales edged up 0.1% last month after rising by an unrevised 0.3% in October.
• Retail inventories excluding autos increased 0.7% in October after rising 0.2% in September. Growth estimates for the fourth quarter now range from as low as a 1.3% rate to as high as a 2.0% pace.
• Imported inflation remained subdued in November. Import prices increased 0.2% last month, lifted by higher prices for petroleum products, after declining 0.5% in October.
• The USD edged lower – DXY index ended down 0.23% at 97.17, after slipping as low as 96.58 (from 97.52).
• CNY rallied to a 4-1/2-month high against the USD. CNY opened at 6.9595 but closed up at 6.9850.
• GBP rose to a 19-month high as investors cheered the likelihood of an orderly Brexit. GBP saw a 1.3507 high (from 1.3050) but ended lower at 1.3340.
• EUR rallied up towards 1.1200 however fell back towards 1.1125.
• JPY weakened towards 109.68 but found some gains lower at 109.25.
• AUD headed towards a second week of gains, climbing as high as 0.6938 on Friday however traded back towards a 0.6862 low.
• NZD traded up at 0.6636 highs before falling back to 0.6600 levels.
• AUDNZD climbed up towards 1.0485 highs before retracing all gains back down at 1.0420.
• AUDEUR managed a 0.6213 high before falling back down to 0.6170. Ended up slightly higher at 0.6185.
• U.S. Treasury prices rose, pushing yields sharply lower, as investors shrugged off news the U.S. and China have agreed on a preliminary trade deal.
• U.S. two-year yields were down at 1.60% from Thursday's 1.67%. U.S. 10-year notes fell to 1.82% from 1.90% late on Thursday. Yields on 30-year bonds dropped to 2.25% from 2.32% on Thursday.
• The spread between the two-year and 10-year note yields steepened, rising to as much as 26 basis points (the widest gap in four weeks).
• Germany's 10-year government bond yield briefly touched a six-month high at -0.215%, while Britain's 10-year gilt yield also jumped to a 6-month peak at 0.895%.
• Gold prices rose - Spot gold was up 0.5% at $1,477.09 per ounce (Gold gained more than 1.2% last week, on track for its best week in nearly three-months).
• China's iron ore futures ended a choppy session higher on hopes of increased demand as Beijing vowed to keep economic policies stable yet more effective to help achieve next year's growth target. Benchmark spot 62% iron ore for delivery to China was steady at $94.80 a tonne, the highest since Sept. 18 this year.
• Copper prices slipped but were still up for a second consecutive week after the "phase one" trade deal was agreed upon. LME copper traded down 0.4% at $6,130 a tonne (reached $6,216 highs).
• Oil rose to its highest in nearly three months as investors cheered progress in the U.S.-China trade dispute. Brent gained $1.02 (1.6%) to settle at $65.22 a barrel, while WTI crude rose 89 cents (1.5%) to $60.07.
ECONOMIC CALENDAR RISK
• Australian Economic data today : Federal Budget, MYEFO, $bn (last -0.7). Budget surplus profile to be trimmed on softer economy.
• RBA Head of Financial Stability (Kearns at Finance & Banking conference, Sydney 12:00pm).
• China - November industrial production (last 5.6%, f/cast 5.5%). Signs of stabilisation apparent in manufacturing.
• China - Nov retail sales ytd %yr (last 8.1%, f/cast 8.0%). Consumers under pressure, with employment weak.
• Europe, U.K. & U.S. – December Markit manufacturing PMI releases).
AUD had an impressive run up towards fresh 0.6938 highs on Friday however it was a case of ‘sell the fact, buy the rumour’ over the U.S. – China trade deal coming to fruition which saw it fall to session lows at 0.6868. Though negotiations over where to sign the agreement are ongoing, a deal has been agreed that would cancel proposed tariff hikes set to go into effect, with the U.S. dialling back some tariffs on Chinese goods that were already imposed. For AUD, the U.S.-China trade deal removes a large impediment to Australian growth, which should reduce pressure on the RBA to cut rates.
Today’s highlight will focus on China’s November Industrial production growth with a positive number expected on signs of stabilisation in manufacturing.
The rest of the week has some impressive Australian releases with Tuesday’s RBA minutes, Wednesday leading index followed lastly by Thursday’s November employment / unemployment data (last -19k jobs, market expecting a rebound +8k). Unemployment rate to remain around 5.30%.
AUD opens slightly higher this morning at 0.6885 after the initial euphoria on U.S.-China deal quickly fades. Suggest markets remain cautious after 17 months of trade feud with no real hastiness to embrace latest news.
AUD rise to be limited as domestic & global economies slow. Initial support 0.6857-62, previous highs followed by 0.6836.
The Daily close above 200 day moving average alleviates downside pressure.
**Important note – 200 day moving average (currently at 0.6908) has seen no daily close above MA since March 15, 2018.
Support 0.6857-62,0.6836 – Resistance 0.6908,0.6938.