OVERNIGHT DATA & HEADLINES
• U.S. home building fell for a third straight month in July amid a steep decline in the construction of multi-family housing units, but a jump in permits to a seven-month high offered hope for the struggling housing market. Housing starts dropped 4.0% to a seasonally adjusted annual rate of 1.191 million units last month, the Commerce Department said on Friday. Data for June was revised down to show starts falling to a pace of 1.241 million units, instead of dropping to a rate of 1.253 million units as previously reported.
• The University of Michigan Sentiment Survey for August fell to a 7 month low of 92.1, down from 98.4 and below expectations of 97.0. Both Current Conditions and Expectations sub-indices were significantly lower though inflation measures were marked a little higher. Little reaction to the data.
• After recent risk-off ructions, the week ended with a corrective risk-on tone, tempted by a combination of profit-taking, a downtick in trade war anxiety, yet more Chinese stimulus planning and an unconfirmed report the German government could break its conservative fiscal rules if the economy fell into recession.
• Fed commentary over the NY afternoon with Kashkari saying that there were mixed signals on the US economy at the moment though thought more stimulus was needed, advocating for an earlier rather than later response. Mester a little less dovish in saying that she would have preferred to hold rates steady and that time was needed to determine the best course of action despite increased risks to the outlook. Little reaction to the comments with markets quiet subdued in late trade and little movement seen into the close. Majors ending the week generally close to the middle of the daily ranges though Usd/cad did dip briefly to lows of 1.3262.
• U.S. and European stocks surged on expectations the ECB will cut interest rates but the USD pared gains against the EUR after a report said the German government was prepared to take on new debt to lift the economy. The German news elicited rebounds in Bund yields and the EUR, though Treasury yields also followed Bund yields higher, dimming the EUR bounce. It also comes after aggressively dovish comments from ECB’s Rehn.
• While all three major U.S. stock averages ended the session higher, they still logged their third consecutive weekly losses, having been rattled since Monday by growing U.S.-China trade animosity, simmering geopolitical tensions and signals from the bond market that sparked fears of impending recession. Dow gained 1.2% on the day while the S&P and Nasdaq were up either side of 1.5%.
• Gold fell as stocks and the USD firmed, but fears of a slowing global economy and lack of clarity on the U.S.-China trade war kept Gold on track for a third straight weekly gain. Spot gold was down 0.5% at $1,514.70 per ounce.
• Chinese iron ore futures ended nearly flat in wobbly trade amid supply worries after operations were suspended at a concentration plant in Brazil, but the steelmaking raw material posted its fourth consecutive weekly loss. The most-traded iron ore contract on the Dalian Commodity Exchange ended the session up just 0.1% at 626.50 yuan ($88.95) a tonne after trading in a tight range.
• Most industrial metals prices fell on Friday, weighed down by uncertainty over how much weak global economic growth is undermining demand, but aluminium rose on potential shortages.
• Oil prices rebounded from a two-day drop, alongside equities as expectations of further stimulus by central banks helped to ease recession concerns. Brent crude ended the session up 41 cents, or 0.7%, at $58.64 a barrel, after falling 2.1% on Thursday and 3% the previous day. U.S. crude rose 40 cents to settle at $54.87 a barrel, having dropped 1.4% in the previous session.
• U.S. Treasury yields rose on a report that Germany may be open to running a deficit to boost growth, while stronger stock markets also reduced demand for safe haven debt.
• The U.S. 2-year Treasury note yield rose above the 10-year note yield on Wednesday for the first time since June 2007, signaling a recession was looming.
• Benchmark 10-year notes were yielding 1.547%, up from a three-year low of 1.475% on Thursday.
• Interest rate futures traders are pricing in an 81% chance of a 25-basis-point cut in September and a 19% chance of a 50-basis-point one
• The USD ended roughly flat, retracing the morning's move higher. The DXY index was higher by 0.05% at 98.197. It has recovered by 1.20% from its three-week low on Aug. 9
• China's yuan eased, pressured by a stronger USD and trade worries after Beijing pledged to retaliate for the latest U.S. tariffs. Onshore CNY opened at 7.0415
• EUR had a roller-coaster ride - 10-day low hit, 1.1070 pierced in early NY as bund yields sank. Quick spike up, lift stalls short of 1.1110, gains erode, near 1.1095 late NY.
• USD/JPY steadied 106+ as risk-off haven grabs were consolidated. Support by 106, 105.50.
• GBP had a rise from lower ECB rate view, soft Brexit tones. GBP ending NY +0.51% at 1.2150
• EUR/GBP selling and position lightening - EUR/GBP -0.61% at 0.9134, Fri range 0.9194-0.9090; lower ECB rate view weighs
• AUD - regional risks kept bulls corralled. AUD confined within broad 0.6735/0.6825 range, 10-DMA remains magnetic.
• NZD was relatively quiet – confined to a 0.6420 / 0.6440 range for the most part.
EVENT RISK TODAY
• No Australian Economic data today.
• Australian shares are set to open higher on Monday tracking a stronger finish on Wall Street while firmer oil prices are expected to support gains in energy stocks.
• New Zealand : NZ Q2 PPI - Inputs QQ, -0.9% prev. NZ Q2 PPI - Outputs QQ, -0.5% prev
• Europe : July core CPI %yr final.
AUD thoughts :
AUD opens higher, boosted by positive weekend news. AUD gains 0.25% in early Asia as risk sentiment receives positive boost (PBOC rate reform, Huawei license extension talk, German stimulus hopes
Lift). US-China trade talks optimism, possibility of Trump-Xi phone discussion positive. AUD rally attempt ran out of puff on Friday (0.6799 highs) despite the recovery in investor mood.
A failure to rally on good news today will generate a sign of intrinsic weakness. Resistance 0.6810, stronger @ 0.6818-23, support 0.6770-75, 0.6735
AUD remains confined within a broad 0.6735/0.6825 range, 10-DMA remains magnetic. Last week’s upbeat Australian jobs, US sales & housing data and equity gains cannot inspire bulls. US-Sino,Japan-S. Korea trade tensions & commodity slump temper AUD longs. Technical outlook remains mixed, daily & monthly RSIs oppose each other for now. Above 0.6820/35 gives bulls some control, below 0.6735 gives bears the edge. Long-term bear trend is intact so corrective rallies are likely to be sold.