OVERNIGHT DATA AND HEADLINES
• U.S. manufacturing industries recorded their first month of contraction in almost a decade amid concern about whether the U.S.-China trade conflict would tip the economy into a recession, a private survey showed on Thursday. IHS Markit said its "flash" or preliminary measure on domestic factory activity fell to 49.9 in August, its lowest level since September 2009. This compared with a final reading of 50.4 the month before. A reading below 50 means the manufacturing sector is contracting.
• The survey's "flash" gauge on new orders for U.S. manufactured goods fell to 49.5, the lowest level since August 2009. This was lower than a final July figure of 51.7.
• Beijing said it would retaliate against new U.S. tariffs on its goods, after President Donald Trump said he had to confront China over trade even if it caused short-term harm to the U.S. economy.
• Hawkish comments from Fed’s officials suggest the Fed won’t act to prevent a recession. The US yield curve inverted once again intraday, triggering risk-off. Wall Street retreated sharply after a robust start to the day.
• GBP was the shining star overnight, soaring over 100 pips following comments from German Chancellor Angela Merkel, indicating that something can be done to prevent a hard-Brexit in the upcoming 30 days. French President Macron, however, insisted on protecting the Union.
• Better-than-expected EU data failed to boost the EUR. EUR met sellers once again at around 1.1110, a critical Fibonacci resistance, as despite positive, the EU and German PMI indicated that the economy continued to underperform.
• Italian president Mattarella has announced that new elections should not be taken lightly and that some parties have said they are working towards a deal, but need more time. Italy's president has extended the time needed for a new government to be formed. Sergio Mattarella has been speaking to key political leaders over the last two days in a bid to find a majority for a new alliance.
• An index of stock markets worldwide crept lower on uncertainty over the outlook for U.S. interest rate cuts and weak U.S. manufacturing data. On Wall Street, stocks finished a choppy session nearly unchanged. The Dow rose 49.51 points (0.19%) at 26,252.24, the S&P 500 lost 1.48 points (0.05%) at 2,922.95 and the Nasdaq dropped 28.82 points (0.36%) at 7,991.39.
• U.S. Treasury yields climbed as comments from Fed officials dampened hopes of future interest rate cuts. Benchmark 10-year notes were down 10/32 in price to yield 1.6131%, up from 1.577% late on Wednesday.
• Iron ore futures in China rebounded in late trade from a 10-week low, while the front-month contract in Singapore rose back above $80 a tonne, following a selloff that was deemed exaggerated. Benchmark 62% iron ore for delivery to China slumped 5.5% on Wednesday to $86.50 a tonne, the lowest since March 29.
• Copper and other industrial metals prices fell as the United States and China exchanged threats in their trade dispute and the yuan slumped to an 11-year low against the dollar. LME copper ended down 0.8% at $5,683 a tonne after touching $5,671, the lowest since Aug. 7.
• LME nickel finished down 1.1% at $15,660 a tonne, zinc fell 1.9% to $2,245, lead lost 1.3% to $2,058 and aluminium closed 0.7% lower at $1,766.
• Other commodities edged lower, with Gold battling to retain the 1,500.00 level and oil dragged lower by the usual market concerns about growth. Brent crude settled down 38 cents, or 0.6%, at $59.92 a barrel, while U.S. West Texas Intermediate crude ended the session 33 cents, or 0.6% lower at $55.35.
• Overnight data dragged the US Dollar Index to a daily low of 98.08, hawkish comments from Fed officials allowed the index to retrace its drop. Back up to 98.20 late trade.
• Asian currencies suffered after the Chinese yuan fell to an 11-year low against the dollar, indicating trade tension between the world's two biggest economies remained a major issue.
• EUR fell below 1.1100, hitting 1.1065 lows
• After dropping to a daily low of 0.6750, AUD remains hovered around the level and was last seen at 0.6765, losing 0.24% on a daily basis.
EVENT RISK TODAY
• No Australian Economic data releases
• NZ – Q2 real retail sales (market +0.2%). Momentum in spending has faded through mid 2019.
• Japan – July CPI % yr
• U.S. – July new home sales, Jackson hole symposium & Fed Chair Powell speaks.
AUD thoughts :
The overnight U.S. Markit manufacturing index reading below the pivotal 50 level since September 2009 sent a chill down the back of carry and risk traders, forcing AUD back down to session lows.
The Aug. 14 low and 61.8% of the Aug. 7-8 rebound at 0.6736/33 are back in play. Worrying was the composite PMI new orders index hitting its lowest since the series began in October 2009 amid
the GFC. Though traders tend to place far more weight on the ISM series than the IHS Markit PMIs, the miss in the services index to 50.9 from 53 last and 52.8 expected feeds into fear that weakness in the manufacturing sector is spreading to the key service sector.
The drop in U.S. equities and commodity, China-linked and EM currencies highlights the risk-off response to the PMI news. China has also stated it will retaliate if U.S. tariffs are raised on Sept. 1 as planned. Any escalation of the trade war would also reinforce AUD/JPY's August breakdown below its key post-GFC supports and put in play AUD's 2019 low at 0.6678, its lowest since 2009.
For now, AUD continues to stay directionless in its weekly range and continues to demonstrate difficulty in determining its next short-term direction.
AUD is in its sixth straight day stuck inside August 14's 0.6736 – 0.6809 range. The 61.8% of August 7-8 rebound is near that range base at 0.6732.
The focus now remains on the pace of CNY's decline and tonight : Powell's speech & results from the Jackson hole symposium.