OVERNIGHT DATA AND HEADLINES
• The U.S. and China announced an initial trade deal that will roll back some tariffs and boost Chinese purchases of U.S. goods and services, defusing an 18-month conflict between the world's two largest economies. Beijing and Washington have portrayed their "Phase 1" agreement as a momentous step after months of start-stop talks punctuated by tit-for-tat tariffs that uprooted supply chains and stoked fears of a further slowdown in the global economy. The centrepiece of the deal is a pledge by China to purchase at least an additional $200 billion worth of U.S. farm products and other goods and services over two years, over a baseline of $186 billion in purchases in 2017. The deal would include $50 billion in additional orders for U.S. agricultural products, Trump said, adding he was confident that U.S. farmers would be able to meet the greater demand. He also said China would buy $40 billion to $50 billion in additional U.S. services, $75 billion more in manufacturing goods, and $50 billion more worth of energy supplies.
• Key world stock market indexes climbed to new records on hopes a U.S.-China trade deal will reduce tensions, but oil prices slid on doubts the pact will spur world growth and boost crude demand.
• On Wall Street, the Dow Jones rose 148 points (0.51%) to 29,087, S&P 500 gained 0.30% to 3,292 and the Nasdaq added 0.29% to 9,278.
• U.S. producer prices edged up in December – PPI index for final demand ticked up 0.1% last month after being unchanged in November. In the 12 months through December, the PPI increased 1.3% after gaining 1.1% in November. For all of 2019, the PPI rose 1.3%. That was the smallest gain since 2015 and followed a 2.6% increase in 2018. Economists polled by Reuters had forecast the PPI climbing 0.2% in December and advancing 1.3% on a year-on-year basis.
• The business conditions index rose to a reading of 4.8 in January from 3.3 in December. It said measures assessing the business outlook over the next six months "suggested that optimism about future conditions remained restrained." A third report from the Fed showed the economy "continued to expand modestly in the final six weeks of 2019," the central bank said manufacturing activity was "essentially flat" in most of the 12 districts. The Fed also noted that "tariffs and trade uncertainty continued to weigh on some businesses" in many districts.
• UK inflation rose at its weakest rate in three years, ramping up expectations of a rate cut from the Bank of England at its January meeting. Consumer prices rose at an annual rate of 1.3% in December compared with 1.5% in November, marking the smallest increase since November 2016. This compared with expectations for a rise of 1.5% rise, according to a Reuters poll.
• The U.S. DXY index was lower overnight, falling 0.14% from 97.42 to 97.15.
• EUR jumped up towards 1.1160 highs from 1.1120.
• GBP reversed initial losses, falling below 1.3000 (1.2985) but retracing back towards 1.3030 following weaker U.K. CPI report.
• CNY slipped, snapping a six-day winning streak. CNY opened at 6.8910 (105 pips weaker than the previous late session close).
• AUD remained on the defensive, falling initially towards 0.6875 but bouncing towards 0.6916 in late NY.
• NZD fell to 0.6582 lows early on but recouped in smalls back up over 0.6600 (0.6619 highs).
• AUDNZD found a fresh 1.0460 high but lingered back towards 1.0440.
• AUDEUR dipped towards 0.6170 lows but found some support back up to 0.6195.
• U.S. Treasury yields declined as investors took stock of an initial U.S.-China trade deal and repositioned around new data showing PPI prices barely rose in December.
• The benchmark 10-year yield was down 3 basis points at 1.78%. The two-year yield was down 2.3 basis points at 1.557.
• The rush for euro zone government debt showed no signs of slowing, as investors flocked to new fund raisings by Italy and Belgium a day after Spain saw record demand.
• The 10-year German bond yield fell 3 basis points to -0.201%, still not too far off the more than six-month highs of -0.157% touched at the start of January.
• Gold rose as details of the U.S.-China Phase 1 trade deal failed to soothe investors' concerns about trade differences. Spot gold rose 0.7% to $1,557.02 per ounce
• Benchmark Dalian iron ore futures seesawed within a tight range as shrinking inventory at China's ports kept investors wary about supply prospects, while thin trade volumes suggest waning demand. The spot price of the benchmark 62% iron-content ore, jumped $1.80 to $96.50 a tonne, the highest since mid-September last year, as futures prices rose on supply-related concerns.
• Copper retreated as investors cashed in on a rally that took prices to an eight-month peak after doubts set in over a U.S.-China trade deal. Three-month LME copper fell 0.2% to $6,287 a tonne.
• Oil prices fell about 1% to their lowest in over a month, after a U.S. report showed big increases in gasoline and distillates inventories and as crude production rose to a new record. Brent futures fell 60 cent, or 0.9%, to $63.89 a barrel while U.S. WTI crude was down 58 cents, or 1%, at $57.65.
ECONOMIC CALENDAR TODAY
• Australian Economic data today - November housing finance (last 2.0%, market f/cast 1.7%). Rebounding on lower rates, improved sentiment.
• Japan - Nov machinery orders (last –6.0%, market f/cast 3.3%). Global manufacturing weakness persists.
• US - Dec import price index (last 0.2%, market f/cast 0.4%). Strong dollar has offset import price growth.
• U.S. - Dec retail sales (last 0.2%, market f/cast 0.3%). Consumer demand to slow in 2020, in line with jobs.
• U.S. - Jan Phily Fed index 2.4 3.4 – Softer tone emerged over 2nd half of 2019. Initial jobless claims (last 214k). Nov business inventories (last 0.2%, market f/cast –0.1%). To remain a risk to growth into 2020. U.S. - Jan NAHB housing market index 76 74 – Housing market supported by low rates and labour market.
Choppy trading in London markets saw AUD fall down initially towards 0.6875 but weaker U.S. inflationary data and a broad selloff in USD enabled AUD to push back up towards 0.6916 highs.
The U.S. / China trade deal was signed overnight in Washington however many economists and experts are dubious about enforcement of the Phase 1 agreement. The deal allows Washington to reinstate tariffs on Chinese goods if it cannot resolve a claim of Chinese non-compliance, but nothing would preclude China from retaliating, people familiar with the deal said. Oil traders and analysts were also doubtful whether China would be able to purchase an extra $50 billion of energy products, including crude oil, liquefied natural gas and imports of petrochemical raw materials such as ethane and liquefied petroleum gas.
Today we have Australian November housing finance out – market looking for a slightly weaker result @ 1.7%. The main interest lies offshore with another heavy night of U.S. data releases.
AUD opens this morning at 0.6900 - similar levels to the last 3 mornings - as direction remains undefined at present. AUD oscillating around the key 200 day moving average (0.6890).
Shorts make two attempt to drive AUD below the 200-DMA…both attempts fail, sharp bounces ensue; today's lift pierces 10-DMA
AUD lifts above the 200-DMA (0.6890) - Rally extends above 10-DMA (0.6908), Jan 14 high, stalls short of the Jan 13 high.
Bull hammer forms, daily RSI rises; techs lean slightly bullish. 0.6920/40 resistance, 21-DMA (0.6925) remain hurdles for AUD longs.
Immediate supports remain at 0.6870 followed by 0.6850.