OVERNIGHT HEADLINES AND DATA
• The USD rose overnight amid concerns about Britain's setting a hard deadline to reach a new trade deal with the European Union, while global equity markets gained, lifted by a resurgent U.S. housing market that bodes well for the economy.
• U.S. homebuilding increased more than expected in November and permits for future home construction surged to a 12-1/2-year high as lower mortgage rates continue to boost the housing market and support the broader economy. Housing starts rose 3.2% to a seasonally adjusted annual rate of 1.365 million units last month, with single-family construction racing to a 10-month high and activity in the volatile multi-family sector increasing for a second straight month. Data for October was revised higher to show homebuilding rising to a pace of 1.323 million units, instead of advancing to a rate of 1.314 million units as previously reported. Overall housing starts jumped 13.6% on a year-on-year basis in November. Building permits increased 1.4% to a rate of 1.482 million units in November, the highest level since May 2007.
• The number of people in work in Britain unexpectedly rose in the three months before the missed Oct. 31 deadline for Brexit, according to data which suggests the labour market was retaining some of its strength. The number of people in employment rose by 24,000 to 32.8 million in the August-to-October period, bucking the median forecast for a drop of 10,000 in a Reuters poll of economists. The employment rate hit an all-time high of 76.2% while the unemployment rate fell back to its lowest level since the three months to January 1975 at 3.8%.
• PM Johnson will use his control of parliament after last week's resounding election victory to ban any extension of the Brexit transition period beyond 2020, a bold move that spooked markets. Johnson plans to pass a law ruling out any extension of the Brexit transition period beyond the end of 2020, saying he is confident he will clinch a free trade deal with the European Union by then.
• U.S. stocks were near record levels, following four straight sessions of gains. Dow Jones up 0.22% at 28,300, S&P 500 up 0.11% at 3,194 and Nasdaq up 0.10% at 8,822.
• The U.S. rose modestly – DXY index was slightly higher, up 0.19% to 97.20, driven by the fall in GBP and improved U.S. data.
• China's CNY was a touch easier, trading in a narrow range. Opened at 6.9994 and closed at 6.9967.
• EUR saw increased volatility overnight, trading up towards 1.1175 and back down to 1.1145.
• GBP gave up most of last week’s gains, descending more than 200 basis points from 1.3300 towards 1.3100.
• AUD eased overnight, slipping from 0.6870 towards 0.6835 lows.
• NZD dropped from 0.6605 highs towards 0.6565.
• AUDNZD saw a minor lift higher from 1.0398 towards 1.0427.
• AUDEUR lifted slightly higher from 0.6126 towards 0.6145.
• U.S. Treasury yields fell slightly on Tuesday as cautious investors purchased government debt despite strong U.S. housing data.
• The 10-year yield was up less than a basis point to 1.892% after falling as low as 1.8520% during the session. The 2-year yield was down 1.2 basis points to 1.632%
• Euro zone bond yields fell as the British government signalled it was ready to set up a Brexit cliff-edge in talks on a trade deal with Brussels. Most 10-year euro zone bond yields were 1 to 2 basis points lower, with Germany's 10-year yield at -0.285%, far off a six-month high of -0.217%.
• Gold steadied - Spot gold was little changed (-.01%) at t $1,475.50 per ounce.
• Iron ore futures in China fell for a second session, slipping 2.9%, as rising shipments from big miners and soft economic data underlined supply and demand contradiction. Benchmark spot cargoes of iron ore with 62% iron content for delivery to China was at $95.5 per tonne (unchanged from the previous session).
• Copper touched a new seven-month peak as markets looked beyond trade deals to potential shortages next year. LME 3 month copper climbed to an intraday high of $6,223 a tonne, strongest since May 8.
• Oil prices rose 1%. Brent crude futures gained 85 cents (1.3%) to $66.19 a barrel. U.S. WTI crude futures rose 77 cents, or 1.3%, to $60.98 a barrel.
ECONOMIC CALENDAR TODAY
• Australian Economic data today – November Westpac–MI Leading Index (last –0.91%). Suggests below trend growth.
• NZ Q3 current account (% of GDP) (last –3.4%, market f/cast –3.4%). Weak export volumes offset by lower profit outflows.
• Europe – November core CPI %yr final (last 1.3%, market f/cast 1.3%). Lifted due to base effects. Pressures are subdued.
• ECB President Lagarde speaks In Frankfurt.
• Ger Dec IFO business climate survey (last 95.0, market f/cast 95.4). Sentiment stabilising.
• UK Nov CPI %yr (last 1.5%. market f/cast 1.5%). Stronger GBP should keep inflation below target.
AUD traded lower overnight down towards 0.6835 as a result of a stronger USD across the board, falling GBP on renewed Brexit tensions, widening in AU-US yield spreads, weakness in key commodities and reverberation from the dovish RBA minutes from yesterday.
The RBA yesterday has opened the door to another cut in interest rates as early as February should household incomes stay depressed or the labour market takes a turn for the worse.
Minutes of its December policy meeting showed the Reserve Bank of Australia's (RBA) Board were concerned that wage growth was too weak to revive either inflation or consumption. "Members agreed it would be important to reassess the economic outlook in February 2020, when the Bank would prepare updated forecasts," the minutes showed. "Members agreed it would be concerning if there were a deterioration in the outlook."
A quiet day ahead with markets now starting to wind down ahead of Christmas and the end of 2019 although client housekeeping activity remains elevated. Local data today will be minor and non-market moving.
AUD trading towards the low side and should continue in this direction (minor demand expected around 0.6820/30).
AUD - longs cannot recover from RBA, lower levels likely.
AUD falls sharply, pierces the 10-DMA & daily cloud top. Little bounce from low seen & daily RSI says s-t momentum is to the downside.
21 & 55-DMAs are interim support ahead of the Dec 10 low & daily cloud base.
Long upper wick on monthly candle is bearish technical concern for longs - 0.6800 break targets key 0.6750/55 support, 0.6700/10 is targeted thereafter.
Lack of bounce suggests longs on the defensive; tech have a bearish tint. Key short-term supports in play.