Overnight Market Activity
· US equities nudged higher, S&P500 up 0.1% to a seven-month high, markets focussed on quarterly earnings reports and brushing aside disappointing US industrial production data. US bond yields & USD rose.
· The US 10yr treasury yield rose from 2.54% to 2.59% - a one-month high, the 2yr yield from 2.39% to 2.41%.
· The chances of a Fed rate cut by December, implied by Fed fund futures, remained at 50%.
· Dow Jones rose 67.89 points (0.26%) to 26,452.66, the S&P 500 gained 1.48 points (0.05%) to 2,907.06 and the Nasdaq added 24.21 points (0.3%) to 8,000.23.
· Gold dropped 1% to its lowest level of 2019, a string of robust economic data boosted demand for riskier assets like equities - Gold was weighed down by gains in the USD. Spot gold was down 1.1% to $1,273.91 per ounce.
· China's steel futures ended a three-day winning streak after hitting a 7-1/2-year peak in the previous session, as cautious investors waited on the release of GDP data. LME copper ended up 0.2% at $6,495 a tonne
· Oil prices rose 1%, as fighting in Libya and falling Venezuelan and Iranian exports raised concerns over tightening global supply, but uncertainty surrounding an OPEC-led production cut limited gains. Brent crude futures rose 54 cents (0.8%) to settle at $71.72 a barrel. U.S. West Texas Intermediate (WTI) crude futures gained 65 cents, or 1%, to settle at $64.05 a barrel.
· The US dollar index is up 0.1% on the day, ending up at 97.07
· EUR slipped from 1.1315 to 1.1280
· USD/JPY rose from 111.85 to 112.05
· AUD retraced yesterday’s reaction to the RBA minutes, rising from 0.7140 to 0.7179
· NZD ranged between 0.6745 and 0.6770
· AUDNZD thus rebounded from 1.0570 to 1.0619
· AUDEUR remained range bound ahead of 0.6350 levels
AUD retreated yesterday however managed to make small gains overnight back towards 0.7170 levels.
The minutes of the April RBA board meeting, released on Tuesday showed the RBA acknowledged the economic effect of ever lower rates could be smaller than in the past, given high household debt and crumbling property prices. Yet easing would still have some simulative effect, in part by causing a likely decline in the AUD. With other central banks around the world turning dovish in recent months, the RBA has come under pressure to follow, simply to stop the AUD from rising and hurting exports. The RBA's board also agreed that a hike in rates anytime soon would be unlikely given inflation remained so subdued. Consumer prices for the March quarter are due next week and could well show the inflation rate slowed further.
AUD appeared headed for a deeper retreat after the RBA minutes mentioned the possibility of rate cuts, but price action since yesterday’s dive has favoured bulls ahead of key China data.
Equity market rallies, buoyant commodity prices and a drop in Australian 3-month bank bill prices helped rally AUD away from the 10-DMA (0.7150) and increase the odds for breaks of the 200-DMA and Feb. 21 high (0.7190).
Upbeat results from key China economic data is needed today if the AUD is to extend. China's March industrial output and retail sales, both of which are expected to improve, as well as Q1 GDP will get close scrutiny from investors to see if stimulus measures in China are leading to stabilised or improved growth. Upbeat data results are likely to see investors flock to risk-sensitive assets such as emerging market currencies, especially China's yuan, and high beta currencies like the AUD. Solid results would also ease some RBA concerns about bearish external factors, which would likely result in gains for Australian interest rates.
AUD bulls on the verge of squeezing bears hard. Upbeat risk sentiment buoys stocks & commodities, AUD nears 0.7180. AUD holds near 0.7175 late despite firm USD & dip in stocks & commodities.
AUD shorts seem nervous, China data could squeeze them more. Technical favour bulls, long lower wick on day candle, 10-DMA supports, RSI’s rise. Bulls to target 2019 high on 0.7210 break, Dec & Aug highs eyed thereafter.
Event Risk Today
· Australian Economic data today : March Westpac-MI Leading Index is released (fell in February but key components lifted in March).
· NZ: CPI is expected to rise 0.3% in the March quarter, for a 1.7% annual pace (down from 1.9% in Q4). Westpac and the RBNZ forecast 0.2% and 1.6%.
· China: Q1 GDP is expected to show the annual growth pace decelerate to 6.3% from 6.4%. The authorities’ growth target is a range of 6.0-6.5% for 2019 compared to the point target of 6.5% last year. A Reuters poll suggests China's economic growth may slow to a near 30-year low of 6.2% this year
· China Mar retail sales, industrial production and fixed asset investment will provide further information on the growth breakdown and momentum.
· Euro Area: Feb trade balance is released and Mar CPI final is expected to confirm the flash read of 0.8% annual core inflation.
· UK: Mar CPI is anticipated to show annual headline inflation edge up to 2.0% with core tracking at 1.9%.
· US: Feb trade balance is expected to be a deficit of $53.5bn, slightly wider than Jan’s $51.1bn. The Federal Reserve Beige Book is released. Fedspeak involves Bullard at the Minsky conference and Harker in New Jersey.