OVERNIGHT DATA AND HEADLINES
• U.S. President Donald Trump predicted a trade deal with China, cooling investor concerns after a ramp-up in rhetoric derailed markets last week. Following the G7 summit of world leaders in Biarritz, France, Trump said he believed China was sincere about the desire to reach a deal, citing what he described as increasing economic pressure on Beijing and job losses there.
• U.S. stocks rose following a sharp sell-off in the prior session - Dow Jones +269 (1.05%) to 25,898 the S&P 500 +31.27 points (1.10%) to 2,878, and the Nasdaq +101 points (1.32%) to 7,853.74.
• New orders for key U.S.-made capital goods rose modestly in July while shipments fell by the most in nearly three years, pointing to continued weakness in business investment and a slowdown in economic growth early in the third quarter. Orders for non-defense capital goods excluding aircraft increased 0.4% last month. Shipments of core capital goods fell 0.7% last month, the biggest drop since October 2016.
• Expectations for slower economic growth were also reinforced by a separate report from the Chicago Fed showing its national activity index fell to a reading of -0.36 in July from 0.03 in June. According to the Chicago Fed, negative readings have been associated with below-average economic growth.
• Interest rates : both the US 2 and 10 yr yields enjoyed minor gains
• Oil prices fell 1% on the outlook for increased supply of Iranian crude after France's president lifted hopes for a deal between Washington and Tehran. Brent crude lost 64 cents, or 1.1%, to settle at $58.70 a barrel, after hitting a session high of $60.17. U.S. West Texas Intermediate (WTI) crude futures settled 53 cents, or 1%, lower at $53.64 a barrel.
• China's steel and iron ore futures slumped, with rebar prices hitting their lowest in more than six months. Benchmark 62% iron ore for delivery to China was steady at $86.50 a tonne. Imported iron ore inventory at China's ports rose steadily for six straight weeks, hitting 124.65 million tonnes.
• EUR erased parts of the Friday’s gains, falling back below 1.1100 (1.1092 lows).
• GBP followed lower falling from 1.2280 towards 1.2210 lows.
• NZD managed a bounce on positive risk sentiment up towards 0.6400 highs
EVENT RISK TODAY
• Australia – RBA Dep Gov Debelle speaks (a balance of payments in Canberra @ 12pm)
• Europe – ECB speak
• U.S. – June FHFA house prices, August Richmond Fed index, August consumer confidence index.
AUD thoughts :
Risk was on overnight following trade tension easing after commentary by both Trump & China provided a boost to currencies. Emerging currencies clawed back some overnight losses to help lift AUD above the 10-day moving average & Aug 23 high. AUD held on to its goodish intraday recovery gains, albeit seemed struggling to extend the momentum further beyond 200-hour SMA.
Positive trade-related headlines turned out to be a key factor behind the short-covering bounce while a goodish pickup in the USD demand capped gains.
Given that technical indicators have just started gaining positive traction, a sustained move beyond the mentioned barrier now seems to set the stage for a bullish move towards reclaiming the 0.6800 round figure mark.
A relatively quiet day on the domestic data calendar with tomorrow’s construction word done, and Thursday’s Capex data likely to provide the next highlights. With markets seemingly a lot calmer now that there appears to be some rational dialogue between China and the US, we focus our attention on the Asian markets reaction to the news at their respective opens.
Despite the increased optimism seen in US and China trade negotiations overnight, the market will still keep a close eye on today’s CNY fix at 11.15am Sydney time. The lagged nature of the fix (given it depends on the previous days 4.30 spot close) indicated (and delivered) only a modest increase in yesterday’s fixing rate. Full impact of the weekend’s tensions on CNY fix will only be felt from Tuesday onwards. The PBoC is likely to err on the side of caution rather than setting a fix much higher than market expectation. In addition, any signs of PBoC intervention in the spot and offshore markets will also help continue calm market conditions.
Technical outlook : US-Sino trade tensions ease a bit, risk assets rally. Rally led by equities and global bond yields as well as JPY sales. AUD/JPY climbs above 72.05, AUD near 0.6790 as shorts cover.
Daily RSI rising again, 10-DMA rising, break above 21-DMA looks likely. 0.6830/35 remains key resistance, if cleared large short covering likely. If trade tensions ease further a break of that zone is probable.