OVERNIGHT HEADLINES AND DATA
The EUR and equity markets advanced as enthusiasm for the European Union's plans for a 750 billion euro ($823 billion) recovery fund offset concerns about unrest in Hong Kong over Beijing's proposed national security laws.
The European Commission proposed a package worth in total 1.85 trillion euros for the EU's next long-term budget and a recovery fund for economies hammered by the coronavirus pandemic. "The Commission is today proposing a new recovery instrument, called Next Generation EU, within a revamped long-term EU budget. In total, this European Recovery Plan will put 1.85 trillion euros to help kick-start our economy and ensure Europe bounces forward," the EU executive said in a statement. News of the plan underpinned a broad market rally in Europe as bank stocks provided the biggest boost to equities.
U.S. Secretary of State Mike Pompeo said he had certified that Hong Kong no longer warrants special treatment under U.S. law as it did when it was under British rule, a potentially big blow to its status as a major financial hub. Pompeo's certification to the U.S. Congress follows China's announcement of a plan to impose new national security legislation on Hong Kong, which has triggered fresh unrest in the territory, with police firing tear gas and water cannon. It now falls to President Donald Trump to decide to end some, all, or none of the U.S. economic privileges which the territory enjoys. The "Hong Kong Human Rights and Democracy Act" approved by the U.S. Congress and Trump last year requires the State Department to certify at least annually that Hong Kong retains enough autonomy to justify the favorable U.S. trading terms that have helped it remain a world financial center.
U.S. stocks rose with the S&P 500 closing above 3,000 for the first time since March 5. Dow Jones rose 553 points (2.21%) to 25,548, S&P 500 gained 44 points (1.48%) to 3,039 and the Nasdaq added 72 points (0.77%) to 9,412.
Canadian Building Permits for April fell by 17.1%, down from a prior reading of -13.4%. In the US, the Richmond Fed Manufacturing Activity Index printed at -27, up from -53 and better than expectations of -40.
In central bank commentary, the BOE’s Bailey said that it was important to consider negative rates but also examine their potential issues. The Fed’s Bullard meanwhile said he did not foresee a rate increase “any time soon”.
The USD steadied overnight, wild movements saw the DXY fall to 98.72, back up to 99.32 and finally end at 99.00.
EUR ended slightly higher at 1.1000 after falling from 1.1030 to a 1.0955 low in offshore trading.
GBP tumbled lower from 1.2354 down to a 1.2204 low but managed to regain composure back at 1.2254.
Against the JPY, the USD was 0.24% higher at 107.80.
AUD revisited previous highs, carving out a new 0.6680 peak before falling to 0.6568 lows. Back up at 0.6614 into NY close.
NZD followed AUD lower, trading to 0.6150 and bouncing back to. 0.6183.
AUDNZD fell to a 1.0670 low but found itself back up at 1.0700.
AUDEUR initially fell to 0.5982 but regained levels back at 0.6010.
U.S. Treasury yields fell but held in their recent tight range, while the Treasury sold a record amount of five-year notes to relatively light demand.
U.S. benchmark 10-year note yields fell two basis points to 0.680%.
US 2yr treasury yields ranged between 0.16% and 0.19%
Australian 3yr government bond yields ranged between 0.26% and 0.27%, while the 10yr yield fell from 0.89% to 0.86% via 0.91%.
European bonds rallied with yields falling to their lowest in around two months as the European Commission proposed to mobilise a 750 billion euro ($823.43 billion) recovery fund for the region's coronavirus-hit economies.
Germany's benchmark 10-year yield hit new five-month highs when details of the European Commission's plans were confirmed.
Gold fell to its lowest price in two weeks - spot gold eased 0.1% to $1,709.50 per ounce. The session low was 1,693.22, its lowest since May 12.
Chinese steel rebar futures extended falls into a fourth session, dragged by worries over consumption due to rains in the southern parts of the country. Spot prices of iron ore with 62% iron content for delivery to China fell by $2.5 to $96 per tonne on Tuesday.
Copper and other base metals prices retreated, shaken by protests in Hong Kong and expected retaliation by Washington against China. Three-month LME copper slipped 1.6% to $5,278 a tonne.
LME aluminium shrugged off news of a rising surplus, gaining 0.4% to $1,525 a tonne. LME zinc slid 2.9% to $1,924, lead shed 3.2% to $1,633, nickel dropped 1.8% to $12,125 and tin was down 0.9% at $15,285.
Oil futures tumbled after some traders doubted Russia's commitment to deep production cuts. Brent crude futures fell $1.65 to $34.52 a barrel, a 4.6% loss. U.S. WTI crude was down $1.54 , or 4.5%, at $32.81.
ECONOMIC CALENDAR TODAY
Australia - Q1 private new capital expenditure 2020/21 capex plans, AUDbn (last -2.8%, forecast -2.8%).
New Zealand - Apr monthly employment indicator (last 0.1%). A timely indicator of jobs during the lockdown. May ANZ business confidence. Confidence is still ow, but has picked up.
Europe - May economic confidence (last 67.0, forecast 72.5). Will be supported by stimulus and relaxation of lockdowns. May consumer confidence (last -18.8). Final read to confirm soft print from the flash.
Germany - May CPI (last 0.4%, forecast 0.2%). Set to drag annual inflation down to 0.7% yr.
UK - May Nation-wide house prices (last 0.7%). Upside surprise in March & April; reversal looks imminent.
US - Q1 GDP annualised QoQ (last -4.8%, forecast -4.8%). Second estimate expected to confirm advance read.
US - Apr durable goods orders (last -14.7%, forecast -18.0%). Airline industry orders have been hit particularly hard.
US - Initial jobless claims (last 2.438mio). Market expects claims to continue dropping.
US - Apr pending home sales (last -20.8%, forecast -15.0%). Usually peak selling season, but turnover has been smashed.
US - May Kansas City fed index. Production, shipments and orders all under pressure.
AUD THOUGHTS AND TECHNICAL ANALYSIS
Risk was on early in offshore trading, AUD tested key topside levels once again failing at 0.6680 highs as the USD was sold after EU Commission recovery plan was announced. Equities extended and AUD/JPY pierced 71.90.
However the USD staged a comeback while copper, oil & iron-ore traded down which saw AUD slip all the way on profit taking towards a 0.6567 low. Saw a mild bounce late into the NY close. Today in Australia we have the release of the Q1 private business capex. Markets are looking at a fall of 2.8% with risks firmly to the downside. This is ahead of a plunge in capex as firms shift to survival mode in response to the COVID-19 recession. Accompanying the release will be the updates to the 2020/21 and 2019/20 capex plans. The ABS will also publish its “Business Impacts of COVID-19” survey for the week commencing 13 May, and RBA Governor Lowe will appear before the Senate Select Committee on COVID-19 (10:00 AEST). In New Zealand, the April monthly employment indicator will provide a timely read on jobs during the lockdown. The final read of May ANZ business confidence is also out. Tonight in Europe the May economic confidence index will be supported by stimulus measures and the progressive relaxation of lockdowns. The market is looking for a modest recovery to 70.6. The highlight will once again focus on the U.S. releases, particularly the second estimate of Q1 GDP which is set to confirm the 4.8% annualised contraction from the flash read. Following this, April durable goods orders are expected to fall by a record 19.1%. Turning to the housing market, April pending home sales are set for another weak print of -15.0%. Under normal circumstances, the beginning of summer would mark peak selling season. Yet again, the market will closely watch initial jobless claims (market f/c 2100k). Finally, the May Kansas City Fed index will be released (market f/c -22), and the FOMC’s Williams (01:00 AEST) and Harker (05:00 AEST) will speak. For the AUD, opens this morning at 0.6620 after a heavy night of profit taking. The daily RSI is close to diverging on the new high which could be a warning to longs. 0.6575, 0.6540 & 0.6510 are supports if it falls lower. Bears need break of key support near 0.6370 to take control. Topside resistance now stands at the 0.6680 fresh highs. If longs can't break the resistance, a correction in the recent rally may be possible.