17th January 2020 - Positive U.S. retail sales see's AUD back on the defensive



Good morning


OVERNIGHT DATA AND HEADLINES


• Key world and stock indexes on Wall Street scaled new records as the U.S.-China trade deal, strong corporate earnings and encouraging U.S. economic data lifted equity markets.

• U.S. retail sales increased for a third straight month in December, with households buying a range of goods even as they cut back on purchases of motor vehicles, suggesting the economy maintained a moderate growth pace at the end of 2019. Retail sales increased 0.3% last month. Data for November was revised up to show retail sales gaining 0.3% instead of rising 0.2% as previously reported. Economists polled by Reuters had forecast retail sales would gain 0.3% in December. Compared to December of last year, retail sales accelerated 5.8%. Sales increased 3.6% in 2019.

• The number of Americans filing claims for unemployment benefits dropped for a 5th straight week last week, indicating the labour market remained strong despite a recent slowdown in job growth. Initial claims for state unemployment benefits dropped 10,000 to a seasonally adjusted 204,000 for the week ended Jan. 11. Economists had forecast claims would rise to 216,000 in the latest week.

• The Philadelphia Fed showed factory activity in the mid-Atlantic region accelerated in January, with manufacturers reporting receiving more orders.

• The S&P 500 crossed the 3,300 mark for the first time and other stock indexes hit record highs. Dow Jones rose 0.60% to 29,205, S&P 500 gained 0.56% to 3,307 and the Nasdaq was up 0.75% at 9,328.

• Central banks were active, with both Turkey and South Africa cutting their interest rates again after policy meetings.

• European Central Bank policymakers took a more upbeat view on economic developments in their December 12 meeting but continued to see an abundance of risk that warrant ultra-easy policies, the accounts of the meeting showed on Thursday. The bank left policy unchanged in Christine Lagarde's first meeting as the bank's president but noted that political risk may be ebbing, inflation pressures seem to be building and the bloc's vast manufacturing sector was showing signs of bottoming out, all suggesting that the worst of the recent slowdown by be over. The ECB will next meet on Jan 23, when it is expected to kick off the policy review. With stimulus already provided through bond buys, negative rates and ultra cheap bank loans, the ECB is expected to keep policy unchanged for most of this year, especially since any big change during a policy review is likely to be controversial.


CURRENCIES

• The U.S. DXY index erased earlier losses after multiple positive data releases – DXY up 0.09% rising from 97.08 to 97.35.

• CNY held steady at 6.8770, 0.19% firmer on the day and its strongest such close since July 30.

• EUR tumbled 0.13% from 1.1172 down to 1.1126.

• GBP reversed majors direction, instead rising 0.24% from 1.3023 towards 1.3082.

• AUD initially inched higher towards 0.6933 highs however fell under the brunt of a stronger USD back down towards 0.6885.

• NZD followed AUD movements somewhat, rising to a 0.6665 high but fell back to 0.6624.

• AUDNZD saw increased selling activity, down 0.45% from 1.0415 to 1.0380.

• AUDEUR jumped back through 0.6200 (0.6210 high) but fell back down to 0.6185.


TREASURIES


• U.S. Treasury yields rose slightly on strong economic data and bank earnings.

• The 10-year yield was up 2.1 basis points at 1.809% while the 2-year yield was up less than a basis point at 1.567%.

• Australian 2yr government bond yields edged lower towards 78bps. 10yr futures pulled back to yields of around 1.18%

• Most euro zone bond yields were marginally lower, with German Bund yields just below two-week highs. Germany's 10-year bond yield fell 1 basis point to -0.22%.

COMMODITIES


• Gold slipped, hurt by upbeat U.S. economic data that signalled a healthy economy. Spot gold fell 0.3% to $1,551 per ounce.

• Iron ore futures slid after top steel-producing city Tangshan issued a fresh smog alert. As restocking ahead of the Spring Festival enters its tail-end, steel mills have sufficient inventories with buying interest poor. Spot prices of the benchmark 62% iron-content ore held steady at 96.20 per tonne but still hovering around a near four-month high.

• Copper touched an eight-month high after the U.S. and China inked an initial deal in a prolonged trade dispute. LME copper was bid down 0.2% at $6,277 a tonne after reaching its highest since May 1 at $6,343.

• Oil rose about 1%, as progress on another major trade deal gave optimism that energy demand will grow in 2020. Brent settled up 62 cents, or 1%, to $64.62 a barrel, while U.S. WTI crude rose by 71 cents, or 1.2%, to $58.52 a barrel.


ECONOMIC DATA TODAY


• No Australian Economic data today.

• New Zealand - Dec manufacturing PMI (Business conditions have been firming) & Nov net migration.

• China - Q4 GDP %yr (last 6.0%, market f/cast 6.0%). Growth slowed in 2019 - trade and credit impacts.

• China - Dec industrial production, %yr (last 6.2%, market f/cast 5.9%). Volatile around a softer trend in 2019.

• China - Dec retail sales, %yr (last 8.0%, market f/cast 7.8%). Trend growth down on recent years.

• Europe - Dec CPI %yr (last 1.0%. market f/cast 1.3%). Pressures subdued.

• UK - Dec retail sales (last –0.6%, market f/cast 0.0%). Consumer remains in reasonable shape.

• US – Plethora of data releases : Nov total net TIC flows, Dec housing starts (last 3.2%, market f/cast 1.1%), Dec building permits (last 1.4%, market f/cast –0.9%), Dec industrial production (last 1.1%, market f/cast 0.0%), Jan Uni. of Michigan sentiment & Nov JOLTS job openings


AUD THOUGHTS


AUD made fresh weekly gains overnight, reaching a 0.6933 high before better than expected U.S. economic data saw it fall back towards 0.6890 supports.

The upbeat US economic data generated positive moves in US Treasury yields and returned mixed commodity asset performance.


No Australian Economic data today however we Chinese tier 1 data releases will be heavily watched..

In Europe, annual inflation is expected to be confirmed at 1.3%yr in December. Underlying price pressures remain muted.

Following four consecutive declines for UK retail sales, a flat outcome is expected in December & finally in the US: the JOLTS report will provide further context on the labour market at November; and University of Michigan Consumer Sentiment will again be confirmed as above-average at January. Housing starts/ permits and industrial production will also be released for December.


For the AUD – 4 straight morning opens at 0.6900 – China GDP for Q4 is today’s key release with AUD direction dependant on the outcome. Likely to remain in recent 0.6880 / 0.6930 ranges overnight and into next week.


TECHNICAL OUTLOOK


U.S. data puts longs on the defensive - 7-day high set after 21-DMA (0.6927) briefly pierced but early gains reverse.

AUD falls sharply, 10-DMA (0.6900) gets pierced, 200-DMA (0.6887) stops any further slide.

Very little bounce seen, AUD sits near day's low late in the session.

Daily RSI diverges, inverted hammer forms, techs warn longs.

Support – 0.6870, 0.6850. Resistance 0.6900, 0.6927.



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