OVERNIGHT DATA AND HEADLINES
• U.S. producer prices increased by the most in more than a year in January, boosted by rises in the costs of services such as healthcare and hotel accommodation. The Labour Department said its producer price index for final demand jumped 0.5% last month, the largest gain since October 2018, after climbing 0.2% in December. In the 12 months through January, the PPI advanced 2.1%, the biggest increase since May, after rising 1.3% in December. Economists polled by Reuters had forecast the PPI gaining 0.1% in January and rising 1.6% on a year-on-year basis. Excluding the volatile food, energy and trade services components, producer prices increased 0.4%, the most since April, after rising 0.2% in December.
• U.S. homebuilding fell less than expected in January while permits surged to a near 13-year high, pointing to sustained housing market strength amid lower mortgage rates. Housing starts dropped 3.6% to a seasonally adjusted annual rate of 1.567 million units last month. That followed three straight monthly increases. Data for December was revised up to show homebuilding rising to a pace of 1.626 million units, the highest level since December 2006, instead of surging to a rate of 1.608 million units as previously reported.
• Building permits soared 9.2% to a rate of 1.551 million units in January, the highest level since March 2007, lifted by gains in both single- and multi-family housing segments.
• Federal Reserve policymakers were cautiously optimistic about their ability to hold interest rates steady this year, minutes of the central bank's last policy meeting showed, even as they acknowledged new risks caused by the coronavirus outbreak. The readout on Wednesday of the policy discussion also showed Fed officials were sceptical about any big rethink of the central bank's inflation target. "Participants generally saw the distribution of risks to the outlook for economic activity as somewhat more favourable than at the previous meeting," the Fed said in the minutes of the Jan. 28-29 meeting. It went on to say the current stance of monetary policy was likely to remain appropriate "for a time."
• The USD gained while U.S. and European equity indexes scaled fresh peaks after China reported another decline in new coronavirus cases and on expectations of Chinese stimulus to counter a slowdown in growth.
• The S&P 500 and the Nasdaq hit all-time highs - Dow Jones up 0.56% at 29,391, S&P 500 rose 0.65% at 3,391 & Nasdaq up 1.09% at 9,825.37.
• The USD climbed to near a three-year high against a basket of other currencies – DXY index rose 0.27% at 99.69, its highest since May 12, 2017.
• EUR managed to fend off anymore losses after dropping to 1.0780 lows, climbing back up towards 1.0800.
• GBP dropped from 1.3022 highs down towards 1.2905 lows.
• China's CNY strengthened - opened at 7.0080 per dollar and dropped to a high of 6.9900.
• AUD nursed losses as risk appetite weakened – AUD reached a 0.6707 peak but fell back towards 0.6662 lows.
• NZD saw further losses dropping from 0.6410 towards 0.6370 lows.
• AUDNZD held relatively firm however weaker trading saw a fall from 1.0480 down towards 1.0450.
• AUDEUR fell from 0.6205 highs down to 0.6175.
• U.S. Treasury yields edged higher as a report that China will take more steps to bolster its virus-hit economy boosted risk taking, and U.S. economic data beat economists’ expectations.
• Benchmark 10-year note yields fell to 1.558% from 1.564% but managed to regain the one point loss. 2 year yields remained steady at 1.43%.
• Euro zone government bond yields stabilised as investors welcomed signs that the spread of the coronavirus in China was slowing. Germany's 10-year benchmark yield initially fell to -0.42%, near to Tuesday's two-week low of -0.43%.
• The rest of the euro zone market followed suit before yields recovered as sentiment across asset classes improved.
• Gold rose, holding above $1,600 per ounce, as worries over the new coronavirus and its impact on global growth boosted safe-haven demand. Spot gold was up 0.46% to $1,609 per ounce (the session high was $1,610.80, its highest since Jan. 8, when gold hit its highest in nearly seven years).
• Iron ore futures in China rose for a seventh straight session amid lingering concerns over tightening seaborne supplies. Supply concerns also lifted spot prices of China-bound iron ore to one-month highs, with the benchmark 62% grade settling at $91.50 a tonne.
• Copper prices steadied near three-week highs as China announced further measures to help shore up growth hit by the coronavirus outbreak, but concern about the eventual damage to the economy capped gains. LME copper ended little changed at $5,770 a tonne.
• Oil prices rose 2.5% as demand worries eased with a slowing of new coronavirus cases in China and supply curtailed by a U.S. move to cut more Venezuelan crude from the market. Brent crude settled at $59.12 a barrel, rising $1.37, or 2.4%. U.S. oil settled at $53.29, gaining $1.24, or 2.4%.
ECONOMIC DATA TODAY
• Australian Economic data today - January employment, '000 (last 28.9k, forecast 15k). Average pace of job creation has moderated since mid–2019.
• Australian January unemployment rate (last 5.1%, forecast 5.2%). Participation rate & unemployment – partial rebound in both.
• Europe - Feb consumer confidence (Labour market prime determinant of sentiment).
• UK - January retail sales (last –0.6%). Despite low unemployment, consumer spending is weak.
• US - Feb Phily Fed index. US manufacturers facing uncertain times. Initial jobless claims (last 205k – Very low).
• US - Jan leading index (last –0.3%, forecast 0.4%). Pointing to growth around trend.
• Fedspeak – Barkin, Kaplan, Brainard, Bostic, Clarida and Mester.
AUD selling interest returned overnight, forcing it back down from low 0.6700 levels towards 0.6662 lows (near the 10 year 0.6656 low reached on Feb 10, 2020).
A stronger USD across the board forced all majors and minors lower as the improved U.S. data fed into equities, certain commodity markets and treasuries.
The focus today will be on the employment / unemployment Australian data releases (released at 11.30am). Market consensus forecasts coming in around 15k jobs with the unemployment rate to shift back up to 5.20% from 5.10%. The participation rate is expected to remain steady around 66.0%.
Job creation seems to have slowed as the loss of momentum in the broader economy continues to make an impact. Over the past three months, employment rose by an average 14.5k/month, including a +28.9k in December. That represents a material step-down from +25k a month in mid-2019.
A caution is always placed around the job release with the actual result a lottery event, as history has shown time and time again.
For the AUD, expect a continuation in underlying USD strength to contribute to much of the weakness which will keep AUD contained for the moment. Watching the jobs data at 11.30am today for further direction as well as coronavirus news.
AUD 10 day moving average (0.6707) caps overnight lift - AUD slide intensifies after upbeat US data drives US Treasury yields, USD higher.
AUD unable to follow AUD/JPY, USD buying drives AUD down near 0.6665.
10 day moving average now capping AUD gains at 0.6704, followed by 0.6734. Downside interest remains at the 0.6656 low (10/02/20).
RSI’s have turned slightly lower which supports a drive towards lows once again.