22nd May 2020 - Risk off halts AUD rally but upside trend remains in place



Good morning

OVERNIGHT DATA AND HEADLINES

  • Millions more Americans filed for unemployment benefits last week, more than two months after a shutdown of the country to deal with the coronavirus crisis, pointing to a second wave of layoffs in industries not initially impacted by closures caused by the pandemic. Initial claims for state unemployment benefits totaled a seasonally adjusted 2.438 million in the week ended May 16, down from 2.687 million in the prior week. Last week's claims reading was in line with economists' expectations, and marked the seventh straight weekly decline. First-time claims have been gradually decreasing since hitting a record 6.867 million in the week ended March 28. Still they remained more than triple their peak during the 2007/09 Great Recession.The Labor Department's weekly jobless claims report also showed the number of people on unemployment rolls surging to a record high in early May, suggesting that businesses were probably not rushing to rehire workers as they reopen.

  • U.S. President Donald Trump said on Thursday the United States would react strongly if China follows through on plans to impose new national security legislation on Hong Kong after last year's often violent pro-democracy unrest. The remarks, made by the President to reporters before leaving the White House, come hours after a Chinese official said the National People's Congress is exercising its "constitutional power” to set up a new legal framework and enforcement mechanism to ensure national security in Hong Kong. 

  • China will not flinch from any escalation in tensions with the United states, but believes economic cooperation and recovery should be the top priority, a Chinese government official said on Thursday. Bilateral ties between China and the United States have soured as Washington has accused Beijing of mishandling the outbreak of the novel coronavirus and blamed it for job losses and business closures caused by the pandemic. "China won't start any trouble, but won't flinch from trouble either," Zhang Yesui, spokesman for the Chinese parliament, told reporters at a media briefing ahead of the start of the annual parliamentary session on Friday. He said the United States would have much to lose and cooperation was the wise approach."Cooperation between China and the United States would only benefit both sides, while fighting would hurt each other," he said. "Cooperation is the only correct choice."

  • U.S. home sales logged their biggest drop in nearly 10 years in April - existing home sales plunged 17.8% to a seasonally adjusted annual rate of 4.33 million units last month. The percentage decline was the largest since July 2010. Economists polled by Reuters had forecast existing home would decrease 18.9% to a rate of 4.30 million units in April. Existing home sales, which make up about 90% of U.S. home sales, dropped 17.2% on a year-on-year basis in April. 

  • The United States has secured almost a third of the first one billion doses planned for AstraZeneca's experimental COVID-19 vaccine by pledging up to $1.2 billion, as world powers scramble for medicines to get their economies back to work. While not proven to be effective against the coronavirus, vaccines are seen by world leaders as the only real way to restart their stalled economies, and even to get an edge over global competitors. The vaccine, previously known as ChAdOx1 nCoV-19 and now as AZD1222, was developed by the University of Oxford and licensed to AstraZeneca. Immunity to the new coronavirus is uncertain and so the use of vaccines unclear.

  • Wall Street ended lower, a day after hitting two-month highs, on a fresh wave of China-U.S. tensions that raised doubts about the trade deal reached early this year between the world's two largest economies. Dow Jones fell 0.41% to end at 24,474.12 points, while the S&P 500 lost 0.78% to 2,948.51. Nasdaq dropped 0.97%, to 9,284.88.

CURRENCIES

  • The USD edged higher - DXY index was up 0.33% at 99.41 after recovering from another drop to 99.03. 

  • EUR fell 0.31% from a 1.1008 high down towards 1.0937.

  • GBP was about flat on the day, trading in between 1.2210 and 1.2250.

  • USDJPY dropped 0.6% from a 107.83 high down towards 107.55 in late trading.

  • AUD attempted another break through 0.6600 but only reached 0.6598, eventually dropping 0.42% to 0.6555 lows.

  • NZD also fell lower from 0.6150 highs towards 0.6105.

  • AUDNZD saw an early boost to 1.0750 but ended slightly lower at 1.0725.

  • AUDEUR bounced around between 0.5980 and 0.6000.

TREASURIES

  • U.S. long-dated Treasury prices inched higher in choppy trading, as investors were relieved that the flood of debt supply from the government to finance its stimulus programs was absorbed in the market fairly smoothly.

  • In afternoon trading, U.S. 10-year yields were at 0.678% from 0.679% late on Wednesday.

  • U.S. 20-year bonds traded at 1.163%, from 1.187% on Wednesday.

  • Italian government 10-year bond yields held near six-week lows - the 10-year yield was unchanged in late trade, not far from the 1.59% low it touched on Tuesday.

  • In core euro zone markets, safe-haven German 10-year government bond yields were down 3 bps at -0.50%. 

COMMODITIES

  • Gold fell more than 1% as investors booked profits from recent rallies. Spot gold was down 1.5% to $1,722.78 per ounce, having earlier fallen to $1,716.44.

  • Dalian iron ore futures snapped a six-session rally to fall on Thursday, hurt by a bleak outlook for global steel demand and as China simplified its customs inspections on imports of the steel-making commodity. Iron ore on the Dalian Commodity dropped 0.3% to 705.50 yuan ($99.30) a tonne, after advancing 12% over the last six sessions. Benchmark spot 62% iron ore climbed to $98.20 a tonne on Wednesday, the highest since Aug. 6. 

  • Copper prices hit 10-week highs - Benchmark LME copper rose to $5,464 a tonne, the highest since March 13, before falling 1% to $5,387 a tonne. Aluminium rose 0.7% to $1,523, zinc fell 3.2% to $1,970, lead ceded 2.9% to $1,648 and nickel climbed 0.8% to $12,775 a tonne. 

  • Brent oil rose more than 1% to its highest since March, supported by lower U.S. crude inventories, OPEC-led supply cuts and recovering demand as governments ease coronavirus restrictions on people's movements. Oil has slumped in 2020, with Brent hitting a 21-year low below $16 a barrel in April as demand collapsed. Brent rose 34 cents, or 1%, to settle at $36.09 per barrel. U.S. WTI crude closed up 43 cents, or 1.28%, to $33.92


ECONOMIC CALENDAR TODAY

  • No Australian Economic releases.

  • New Zealand - Q1 real retail sales (last 0.7%). Confidence fell in Q1, lockdown started late in the quarter.

  • Japan - April CPI %yr (last 0.4%, forecast 0.2%). Persistent problem of low inflation will only worsen ahead.

  • Europe - May Market PMIs. Flash services and manufacturing PMIs for Eurozone and Germany.

  • UK - April retail sales (last -5.1%, forecast -12.5%). Expected to post a record monthly contraction.

  • UK - April public sector borrowing (last 2.3). Volume will increase as stimulus comes online.

AUD THOUGHTS AND TECHNICAL ANALYSIS

The risk off rally halted for the AUD, as an attempt to break through 0.6600 was thwarted at 0.6598, falling back towards a 0.6555 low as the USD jumped higher after selling interest to take it through 99.00 failed.  

The early jump higher was supported by an equity bounce, copper gains and a boost in an AUDJPY rally near 71.10.  Investors remain concerned about US-Sino tensions as escalations grew yesterday on reports China will not flinch from any escalation in tensions with the U.S., but believes economic cooperation and recovery should be the top priority, a Chinese government official said on Thursday. No Australian Economic releases today - main headlines tonight will be out of Europe and U.K.  For the AUD, opens this morning at 0.6560 with the rally off March 19 low intact. The 200-DMA, 76.4 Fib of 0.7032-0.5510 and March 9 high loom above (0.6663-0.6685) Daily RSI are near overbought levels but monthly RSI’s rising; consolidation might be needed. Resistance break would target Feb high; bears need below 0.6370 support to be in control for further downside price action.




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