17th April 2020 - AUD defends fall, moves higher as S&P futures rally 2%



Good morning

OVERNIGHT DATA AND HEADLINES


  • A record 22 million Americans have sought unemployment benefits over the past month, with millions more filing claims last week, almost wiping out all the job gains since the Great Recession and underscoring the toll on the economy from extraordinary measures to control the novel coronavirus outbreak. The deepening economic slump was also amplified by other data on Thursday showing manufacturing activity in the mid-Atlantic region plunged to levels last seen in 1980 and homebuilding tumbling by the most in 36 years in March.

  • Initial claims for state unemployment benefits dropped 1.370 million to a seasonally adjusted 5.245 million for the week ended April 11. Data for the prior week was revised to show 9,000 more applications received than previously reported, taking the tally for that period to 6.615 million. A total of 22.034 million people have filed claims for jobless benefits since March 21, representing about 13.5% of the labor force. Employment bottomed at around 138 million in December 2010 and peaked at 158.8 million in February. At face value, the staggering claims numbers set the economy on course for job losses of more than 1 million in April.

  • U.S. homebuilding fell by the most in 36 years in March amid a broad decline in activity. Housing starts plunged 22.3% to a seasonally adjusted annual rate of 1.216 million units last month. That was the largest monthly decline in starts since March 1984. Data for February was revised down to show homebuilding decreasing to a pace of 1.564 million units instead of dropping to 1.599 million units as previously reported. Permits for future home construction dropped 6.8% to a rate of 1.353 million units in March.

  • The Philadelphia Federal Reserve also reported that its measure of business conditions in the mid-Atlantic region dropped to a reading of -56.6 in April, the lowest reading since July 1980, from -12.7 in March. 

  • World stock markets seesawed while bond yields retreated as dire U.S. jobless data underscored a deepening downturn amid the coronavirus pandemic and tamped down investor hopes a listless economy would soon be back on its feet. Wall Street rose as Amazon.com and Netflix surged to record highs. Dow Jones rose 33.33 points, or 0.14%, to 23,537.68, the S&P 500 gained 16.19 points, or 0.58%, to 2,799.55 and the Nasdaq added 139.19 points, or 1.66%, to 8,532.36.

  • Parts of President Donald Trump's guidelines for re-opening the U.S. economy amid the coronavirus pandemic trickled out on Thursday afternoon, revealing a three-phase plan that could allow some states to begin as early as this month lifting limits meant to contain the disease's spread. In the first phase of Trump's guidelines, to be publicly unveiled on Thursday evening, larger venues like restaurants and movie theatres could operate again with strict social distancing, according to a copy seen by Reuters. Non-essential travel could resume and schools could open their doors again in phase two. In phase three medically vulnerable people could resume public interactions. The New York Times reported that Trump told governors of states that some could re-open their states by May 1 or earlier. He was also expected to soon announce hiring plans for tracking the disease's spread, according to the Times.

CURRENCIES


  • The USD hit a one-week high as investors fled to safe-haven assets following the release of weekly U.S. jobless data. The DXY index rose as high as 100.3 but fell back towards 100.10 in late trade.  

  • EUR resumed its drop, down 0.67% at 1.0840.

  • USDJPY weakened, jumping up from 107.18 towards 107.80.  

  • GBP fell 0.68% from a 1.2529 high down to 1.2409, recovering towards 1.2440 into the close.

  • CNY slipped to its weakest level in more than a week. Onshore CNY opened at 7.0750 and eased to a low of 7.0840.

  • AUD remained under pressure as it struggled to hold above 0.6300. Saw an overnight high of 0.6326, fell down to a 0,6277 low and opens around 0.6320. 

  • NZD saw heavy selling interest from 0.5980 towards 0.5925 but improved back up at 0.5950.

  • AUDNZD remained buoyant, trading an extremely narrow 15 point range between 1.0585 and 1.0600.

  • AUDEUR climbed back above 0.5800 hitting a late high at 0.5825.


TREASURIES

  • U.S. Treasury yields fell for a third straight session, pressured by more data showing how the coronavirus outbreak has choked the U.S, as debates mounted about reopening businesses in the United States. 

  • U.S. 10-year and 30-year yields dropped to two-week lows, while those on two-year notes slid to a new three-year trough. The yield curve also continued to flatten.

  • U.S. 10-year yields fell to 0.607%, from 0.641% late on Wednesday. 

  • Yields on U.S. 30-year bonds were at 1.208%, down from 1.275% on Wednesday. 

  • U.S. two-year yields were last at 0.202%, down from Wednesday's 0.205%. Earlier in the session, two-year yields sank to 0.187%, the lowest since April 2017.

  • The yield curve flattened for a second straight day, with the spread between the 10-year and two-year narrowing to 41 basis points from 43 basis points on Tuesday. It was the flattest in more than a week.

  • German 10-year yields were down 1 basis point to -0.48%.


COMMODITIES

  • Gold retreated slightly after climbing as much as 1.3% earlier on. Spot gold was up 0.5% at $1,724.12 per ounce, holding near a more than seven-year high hit earlier this week. 

  • China's iron ore futures dropped, after a poll showed the country's GDP growth for the March quarter is expected to decline for the first time in nearly three decades. 

  • Copper prices firmed as data from China pointed to signs of gradual recovery from the coronavirus, but gains were capped by concerns about global growth and falling metals demand. Benchmark LME 3 month  copper gained 0.5% to $5,139 a tonne.

  • Oil prices were mixed, as Brent crude rose modestly while U.S. futures ended unchanged at an 18-year-low after some European countries said they would relax coronavirus restrictions even though OPEC lowered its global oil demand forecast. Brent futures gained 13 cents, or 0.5%, to settle at $27.82 a barrel, while U.S. West Texas Intermediate crude ended the day unchanged at $19.87, marking the second straight day at its lowest close since February 2002.


ECONOMIC CALENDAR TODAY


  • No Australian Economic data releases today.

  • New Zealand - March manufacturing PMI.

  • Japan - Feb industrial production (the final print for Feb, outlook worrying).

  • China - Q1 GDP (last +6.0%, forecast -6.0%). Poised for a major contraction in Q1 given the shutdown.

  • China - March retail sales (last -20.5%, forecast -14.4%).

  • China - March industrial production YTD% (last -13.5%, forecast -9.9%). 

  • Europe - March CPI% (last 0.7%, forecast 1.2%).

  • US - March leading index (last 0.1%, forecast -7.0%). To reflect the marked souring of conditions.


AUD THOUGHTS AND TECHNICAL ANALYSIS

AUD extended its fall for a second day, reaching a 0.6264 low yesterday and 0.6277 overnight but two key technical supports helped ease some fears over a further drop. 

Australia's unemployment rate ticked up only modestly in March (released yesterday) though economists warned the worst was yet to strike as the monthly data was collected before widespread restrictions and shutdowns kicked in to fight the coronavirus. Figures from the Australian Bureau of Statistics (ABS) on Thursday showed 5,900 net new jobs were added in March when analysts had predicted a drop of 40,000. All of that gain was led by part-time work, which climbed 6,400 while full-time employment eased a tad. The unemployment rate inched up to 5.2% from 5.1% in February, confounding expectations for a jump to 5.5%. The ABS cautioned Thursday's figures do not show the full impact of COVID-19 primarily due to the reference weeks falling in the first half of March before mobility restrictions, mandatory quarantine and shutdowns were put in place. No local Economic releases today - attention will shift to China with tier 1 releases (Q1 GDP, March retail sales and industrial production) likely to show a further deterioration in the economy. 

For the AUD, a steady lift has seen AUD near flat overnight and even the dismal U.S. weekly claims data did little to deter bulls. The lack of a major risk-off theme after the claims data likely helps buoy AUD today. 

Investors seem to be taking the data in its stride and have not panicked after claims data and the VIX close to turning down for the day. Early equity market losses are eroding, which is an additional indicator that investors are less fearful. Should risk sentiment improve further AUD bulls could drive it back up through the short-term resistance in the 0.6345/50 area. A break of that resistance could lead to a test of 0.6450. 

AUD longs do have to tread cautiously though. Emerging market currencies and China's CNY are trading soft against the USD. Should they weaken significantly AUD downside risks will increase.

On the downside, buyers are lurking near the 38.2% Fibonacci of 0.5980-0.6445 (0.6267) and the 10 day moving average (0.6270). 




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