22nd November 2019 - Trade optimism not enough - AUD falls


Good morning


OVERNIGHT MARKET HEADLINES & DATA


• The USD and global equity markets edged lower as efforts by China to smooth the path forward in U.S.-Sino trade talks was offset by concerns tensions were too large to quickly overcome.

• U.S. labour market, manufacturing data point to slowing economy - Initial claims for state unemployment benefits were flat at a seasonally adjusted 227,000 for the week ended Nov. 16, the highest level since June 22. Data for the prior week was revised to show 2,000 more claims received than previously reported. The four-week moving average of initial claims, considered a better measure of labor market trends as it irons out week-to-week volatility, rose 3,500 to 221,000 last week, the highest since June 29. Job growth has slowed this year, averaging 167,000 per month compared with an average monthly gain of 223,000 in 2018, in part because of the U.S.-China trade spat, ebbing demand and a shortage of workers.

• In a separate report on Thursday, the Philadelphia Fed said its business conditions index rose to 10.4 in November from 5.6 in October. But the survey's measures of new orders, employment and shipments declined, pointing to underlying weakness in manufacturing in the region that covers eastern Pennsylvania, southern New Jersey and Delaware.

• The National Association of Realtors said existing home sales rose 1.9% to a seasonally adjusted annual rate of 5.46 million units in October. But gains are likely to be limited. The median existing house price surged 6.2% from a year ago to 270,900 in October, the biggest rise since June 2017. In addition, the stock of houses on the market fell.

• A fourth report from the Conference Board showed its Leading Economic Index dipped 0.1% in October after declining 0.2% in both September and August.

• Wall Street's main indexes fell - Dow Jones down 85 points (0.30%) at 27,736, S&P 500 down 9 points (0.30%) at 3,099 and Nasdaq down 31 points (0.36%) at 8,495.

• European Central Bank policymakers buried the hatchet at their meeting last month, dropping criticism of a money-printing programme that had bitterly divided them just weeks earlier, the accounts of the gathering showed on Thursday. The euro zone's rate setters agreed to stay put at the Oct 23-24 meeting, which was Mario Draghi's last as ECB President, and to give a stimulus package unveiled a month earlier more time to work its way through to the economy. The policymakers also made a "strong call" for unity after a decision to start adding to the ECB's 2.6 trillion euro ($2.9 trillion) bond pile had been forced through against opposition from a third of the Governing Council in September, triggering a rare public backlash.

CURRENCIES


• The USD edged higher into the NY close, DXY index up 0.06% at 98.00 from 97.74 lows.

• EUR fell from 1.1090 highs down towards 1.1055.

• GBP fell from 1.2970 down to 1.2890 lows.

• CNY gained – after opening at 7.0385 CNY fell towards 7.0260

• AUD backpedalled, dropping back towards 0.6784 lows after reaching 0.6814 highs overnight.

• NZD lower overnight, falling from 0.6437 highs towards 0.6400 support.

• AUDNZD reached 1.0575 lows however recovered some ground back to 1.0600 into NY close

• AUDEUR remained in a tight 15 point range between 0.6130 / 0.6145.

TREASURIES


• U.S. Treasury yields rose after falling for three straight sessions, bolstered by more positive news on trade negotiations with China and unwinding most of this week's safe-haven demand.

• U.S. two-year yields edged up to 1.60%, up from Wednesday's 1.572%.

• U.S. 10-year note yields rose to 1.77%, up from Wednesday's 1.738%.

• Yields on 30-year bonds <US30YT=RR> were up at 2.23%, up from 2.20% on Wednesday.

• The yield curve steepened amid more upbeat trade news, as investors reversed six straight sessions of flattening. The spread between the 2 and 10-year note widened to as much as 18.5 basis points.

• German bond yields ended a three-day falling streak and nudged higher as investors took profits after a rally. German 10-year bond yields rose nearly 2 bps to -0.3340%, above a three-week low of -0.3840%.


COMMODITIES


• Gold prices eased - Spot gold dipped 0.4% to $1,464.75 per ounce.

• Iron ore futures in China recovered from early losses to close slightly higher, amid uncertainty on whether Beijing and Washington could reach a "phase one" trade deal this year.

• Copper prices fell after U.S. legislation supporting protesters in Hong Kong increased concerns that a U.S.-China trade deal would be delayed. Benchmark LME copper ended 0.8% down at $5,829 a tonne.

• Oil prices rose nearly 2% following a Reuters report that OPEC and its allies are likely to extend output cuts until mid-2020, while fresh signs emerged that China had invited U.S. trade negotiators for a new round of talks. Brent crude was up 97 cents (1.6%) at $63.37 a barrel while WTI crude rose 98 cents (1.7%) to $57.99.

ECONOMIC CALENDAR TODAY


• No Australian Economic data today

• Japan – PMI releases

• Europe – PMI releases

• German – PMI releases

• U.S. – PMI releases

• U.S. – November University of Michigan sentiment


AUD THOUGHTS


AUD fell back under 0.6800 as relatively positive U.S. data saw USD bought across the board as major currencies fell.

Initial U.S. weekly jobless claims were unexpectedly unchanged at a five-month high, a mild pick up in factory activity in the mid-Atlantic region, U.S. home sales increasing more than expected in October and house prices rising at the fastest pace in more than two years gave ammunition for markets to bid USD.


No Australian Economic data today – a raft of global PMI releases will be the focus overnight.

AUD to remain in recent trading ranges – sensitivity will be strong to any further deterioration in trade data.


TECHNICAL OUTLOOK


Risk sinks slightly on Hong Kong headlines, safe havens bought - AUD falls from the 55-DMA (0.6815), turns flat on the day, holds above the cloud.

Recent consolidation phase persists & thin daily cloud acts magnetically. Solid support sits @ 0.6766 and then 0.6750. A break is likely to test 2019's low.

Global November PMIs due Friday, investors might keep power dry until then.




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