OVERNIGHT DATA AND HEADLINES
German business morale crashed in April in its most dramatic fall on record, hitting the lowest reading since reunification. The IFO institute said its business climate index of firms from across the economy slumped to 74.3 in April from a downwardly revised 85.9 in March. A Reuters poll of economists had pointed to a fall to 80.0. As Europe's export powerhouse, the disruption to global trade from the pandemic has clobbered German factories, while domestic lockdown measures to contain the virus have squashed consumer spending.
Global equity benchmarks struggled on Friday as some U.S. states began reopening businesses despite the disapproval of health experts, and as the European Union put off addressing details of its new economic rescue plan. Safe-haven government bonds edged up while the USD slipped, reflecting the market's unsettled direction. Oil's recovery lost some steam during the day.
Wall Street rallied, led higher by Apple and Microsoft. Dow Jones jumped 1.11% to end at 23,775 points, while the S&P 500 gained 1.39% to 2,836.74. The Nasdaq added 1.65% to 8,634.52. For the week, the S&P 500 fell 1.3%, the Dow lost 1.9% and the Nasdaq lost 0.2%.
Another wave of U.S. states were preparing to lift coronavirus restrictions against the warnings of many public health experts as the White House sees this month's jobless rate hitting 16% or higher. Colorado, Mississippi, Minnesota, Montana and Tennessee will join other states beginning an experiment to reopen economies without the testing and contact-tracing infrastructure health experts say is needed to prevent a resurgence of infections, with lives in the balance. Georgia, Oklahoma, Alaska and South Carolina have already taken steps to restart their economies following a month of government-ordered lockdowns. Eight states never ordered residents to stay at home -- Arkansas, Iowa, Nebraska, North Dakota, Oklahoma, South Dakota, Utah and Wyoming.
USD eased on Friday, snapping a four-day winning streak to fall down towards 100.10 lows.
EUR was up 0.16% at 1.0793, rising up from 1.0727. EUR remained short of the high of 1.0846 touched last Thursday.
GBP was 0.14% higher on the day at 1.2359 despite data showing British retail sales fell by the most on record in March.
USDJPY found strength in the Friday session, trading lower from 107.73 towards 107.37.
CNY eased against the dollar on Friday, set for its second straight weekly loss. CNY opened at 7.0800 and was changing hands at 7.0860.
AUD bounced higher as gains were made from 0.6339 lows all the way to a late session 0.6395 high. Opens softer this morning at 0.6380.
NZD tracked AUD higher, jumping up from 0.5978 lows to reach 0.6017 into the NY close.
AUDNZD remained above 1.0600 for the most part, trading towards 1.0630 highs.
AUDEUR saw gradual selling from an earlier 0.5923 spike as it made its way back to trade between 0.5890/0.5900.
U.S. Treasury yields were little changed as investors stuck with riskier assets like stocks despite dim prospects of a quick economic rebound after the novel coronavirus outbreak.
The benchmark 10-year yield was down one basis point at 0.601% while the 2-year yield was down less than a basis point at 0.2144%.
The gap between the 2 & 10 year yields was at 38 basis points, within a basis point of its close on Thursday.
Southern European bond yields fell by about 10 basis points as markets remained focused on ECB action to mitigate euro zone economic stress and prevent Italy's credit rating from tumbling into junk territory.
Italy's 10-year bond yield was down 10 basis points. It touched a four-day low around 1.87%, having risen as high as 2.11% earlier. German 10-year bond yields were down about 4 bps last at -0.47.
Gold prices slipped on Friday profit taking. Spot gold was down 0.4% at $1,724.29 per ounce, having earlier dropped more than 1%.
Steel rebar and hot-rolled coil futures in China fell, posting losses for the week, as rising output at mills outweighed the de-stocking pace of inventories that continued to remain at elevated levels. Iron ore futures on the Dalian Commodity Exchange for the most-active September contract, ended down 0.4% at 607 yuan a tonne. Spot prices of iron ore with 62% iron content for delivery to China rose to $86 per tonne on Thursday.
Copper prices retreated - Three-month LME copper was down 0.3% at $5,143 a tonne and on track for its first weekly decline in four weeks. Aluminium added 0.5% to $1,518 a tonne, zinc rose 0.7% to $1,886, lead fell 1.2% to a one-month low of $1,626.50 and tin shed 0.7% to $14,890.
Oil prices rose, bringing an end to another week of losses as global production cuts could not keep pace with the collapse in demand caused by the coronavirus pandemic. Oil trading was extremely volatile all week, in an extension of the selling that has dominated trading since early March as demand collapsed 30% due to the pandemic. Brent futures rose 11 cents, or 0.5%, to settle at $21.44 a barrel, while U.S. WTI crude rose 44 cents, or 2.7%, to close at $16.94. Oil futures marked their third straight week of losses, with Brent ending down 24% and WTI off around 7%.
ECONOMIC CALENDAR TODAY
No Australian Economic data today.
New Zealand - Anzac Day public holiday (markets closed).
Japan - BOJ policy rate decision (last -0.1%). Monetary focus will be on asset purchase programs.
China - March industrial profits %yr.
US - April Dallas Fed index (last -70, forecast -71.5).
AUD THOUGHTS AND TECHNICAL ANALYSIS
AUD remained resilient over the Friday session, rising from 0.6339 lows to a late 0.6395 NY close as buyers remained in the current risk off/risk on trading sentiment. The ability to shake off global economic data mixed and oil volatility buying interest has continued to shine through into both AUD and AUD cross related buying interest.
Behind the AUD’s 17% rally from near 18-year lows lies somewhat of a expectation on China to lead the world out of the global recession. Apart from its role as a risk barometer, the fortunes of the AUD (and Australia) have been closely tied to China's economy. The AUD’s rise suggests investors are placing early bets on a China-led global recovery, just as they did during the GFC. While the current AUD rise can be partly attributed to a fragile recovery in risk appetite on optimism the pandemic is peaking, a sturdier reason is the likelihood of a China-led global economic revival. The week ahead will confront financial markets with the economic damage inflicted thus far from COVID-19 and limits of the world’s biggest central banks to further support economies. The US and Eurozone will release Q1 GDP. Italy’s Q1 GDP could provide a foreboding warning for Q2 growth, given Europe’s worst hit economy introduced lockdown measures earlier than the rest. ECB and Federal Reserve policy meeting are likely to be non-events, given all they have done so far. Expectations are high for a Bank of Japan easing today. Media reports suggest the Bank of Japan is poised to double the size of its corporate bond program at Monday’s policy decision, and to introduce unlimited JGB purchases. The existing corporate bond purchase program is relatively small, and simply dropping its JGB purchase target should not have any impact on the pace of the BoJ’s JGB purchases. The policy statement still claims that JGB holdings will grow by about Y80trn per year, but that guidance is a relic of the past, superseded by the introduction of yield curve control in 2016. The BoJ has been buying less than half that amount since then, and the meaningless Y80 trn target should have been dropped years ago.
Given the extent of policy easing measure already announced, Thursday’s ECB rate decision should be a non-event. Note it is not accompanied by updated staff economic forecasts. It will be a chance for a stock-take on how things have progressed so far and for journalists to ask questions about the extent of Italian bond purchases and fears around deflation. Of course, the press conference will include the usual refrain for fiscal policymakers to do more. There is much uncertainty as to the degree of the Eurozone’s Q1 GDP contraction, with a wide range of economists’ forecasts. Containment measures were generally limited until the final week or two of March, however the abrupt negative shock of a complete production shutdown in some sectors will undoubtedly drag the euro area into contraction, before the full force is felt in Q2. There should be relatively muted interest in Australian Q1 CPI data and the key focus should be on how low inflation falls in coming quarters amid significantly higher spare capacity in the economy. The release of US 1Q real GDP will only partially reflect weakness emanating from COVID-19 related shutdowns, which only became widespread in the second half of March. The FRB Atlanta GDPNow model suggests weakness in consumer spending and business fixed investment may be partially offset by positive contributions from residential investment, net exports, and government spending.
For the AUD, opens this morning around 0.6380. Commodities & equities remain buoyed whilst the USD remains offered as risk slightly upbeat.
Friday nights price action leaves technicals leaning bullish; AUD holds above 10 & 55-DMAs & RSIs are rising The 0.6250-0.6450 range likely to persist - resistance at 0.6400-10 pivotal up towards 0.6435-50. Support eyed at 0.6360-65, 0.6340-45.