29th January 2020 - AUD fails to bounce despite risk recovery



Good morning


OVERNIGHT DATA AND HEADLINES


• U.S. stocks rose as gains in technology and financial sectors helped major indexes recover from their worst selloff in about four months on worries over a coronavirus outbreak and its impact on the global economy. Dow Jones was up 1.00% at 28,822, S&P 500 gained 1.28% to 3,285 and the Nasdaq rose 1.59% to 9,285.

• New orders for key U.S.-made capital goods dropped by the most in eight months in December and shipments were weak, suggesting business investment contracted further in the fourth quarter and remained a drag on economic growth. Orders for non-defence capital goods excluding aircraft, a closely watched proxy for business spending plans, fell 0.9% last month as demand for machinery, primary metals and electrical equipment, appliances and components declined. That was the largest decrease since April. Data for November was revised lower to show these so-called core capital goods orders edging up 0.1% instead of gaining 0.2%. Core capital goods orders rose 0.8% in 2019. Shipments of core capital goods decreased 0.4% last month. Business investment has contracted for two straight quarters and likely stuck in the red in the 4th quarter.

• Consumer confidence index increased 3.4 points to a reading of 131.6 in January, the highest reading since August.


CURRENCIES

• Concerns about the economic fallout from the coronavirus outbreak in China supported safe-haven currencies, with the DXY index at a two-month high.

• The U.S. DXY index was last up 0.07% at 98.02 after earlier reaching its highest level at 98.15 (since early December) and taking its gains so far this month to 1.8%.

• EUR managed to rebound from 1.0998 lows up towards 1.1015.

• GBP fell through the 1.3000 support down to 1.2974 lows but managed to rebound at close to 1.3008

• JPY was off of Monday's high, last 0.19% weaker at 109.10.

• AUD earlier in the session hit a fresh 15-week low at 0.6735 and was last trading 0.12% weaker at 0.6750.

• NZD fell further from 0.6550 highs yesterday to a 0.6520 low overnight.

• AUDNZD found support around 1.0320 reaching a 1.0350 high. Last trading at 1.0335.

• AUDEUR ebbed and flowed between 0.6110 and 0.6140.


TREASURIES


• Three-month, 10-year yield curve briefly inverts - Yields get technical support at bottom of recent range - Treasury sells $32 bln in seven-year notes.

• Benchmark 10-year Treasury yields bounced off three-month lows, after the yield curve between three-month notes and 10-year government bonds briefly inverted to -0.015 for the first time since October, as risk appetite improved even while investors kept assessing the economic impact from a virus outbreak in China.

• Benchmark 10-year note yields fell as low as 1.57% overnight, the lowest since Oct. 10, before jumping back to 1.65%.

• Euro zone government bond yields rose for the first time in over a week, bouncing off three-month lows thanks to strong U.S. consumer confidence data. Most euro zone 10-year government bond yields, which had continued their fall earlier in the session, were last up 3 basis points on the day.


COMMODITIES


• Gold fell as equity markets rebounded following positive U.S. economic data while the USD scaled a near two-month peak. Spot gold was down 0.80% at $1,569 per ounce, having touched $1,586 (its highest since Jan. 8 on Monday).

• Chinese commodities exchanges delayed their re-opening dates post Lunar New Year by three days to Feb. 2 as part of the country's effort to contain a fast-spreading coronavirus which has killed more than 100 people. The benchmark iron ore futures on the Dalian Commodity Exchange dropped on Thursday, falling 2.3% on Thursday to close at 649.5 yuan per tonne.

• Copper fell to a near four-month low, extending losses triggered by Coronavirus fears. Benchmark LME 3 month copper ended 0.7% lower at $5,703 a tonne, recording its 10th straight session of losses.

• Oil futures edged up after falling for five days, bouncing up with Wall Street, and crude also drew support from talk that OPEC and its allies might tighten the market amid fears the coronavirus could weigh on oil demand. Brent futures rose 45 cents, or 0.8%, to $59.77 a barrel. U.S. West Texas Intermediate (WTI) crude rose 41 cents, or 0.8%, to $53.55.


ECONOMIC DATA TODAY


• Australian Economic Data today – December Westpac-MI Leading Index (last –0.81%). A below trend reading in Nov.

• Australian - Q4 CPI %qtr (last 0.5%, market f/cast 0.6%). Q4 CPI %yr (last 1.7%, market f/cast 1.7%). Q4 core CPI % yr 1.6 1.5 1.5 ... suggests there is little inflationary pressure elsewhere.

• Europe - Dec M3 money supply %yr 5.6. Credit data also due.

• US - Dec wholesale inventories. Dec pending home sales %mth (last 1.2%, market f/cast 0.7%). Supply the prime hindrance to sales growth.

• FOMC policy decision, midpoint 1.625% 1.625% 1.625% On hold for now, but cuts seen from June.


AUD THOUGHTS


AUD was pinned near three-month lows overnight as markets struggled to assess the potential economic damage that could come from China's coronavirus outbreak.

AUD was huddled at 0.6750 having slid almost 1% when the local market was shut for a holiday. Risk-off positioning has cooled off, though investor sentiment clearly remains wary, faced with the "known unknown" conundrum of how bad and how widespread and how economically damaging the coronavirus outbreak will be. President Xi Jinping said on Tuesday that China was sure of defeating the "devil" coronavirus that has killed 106 people. Yet despite his confidence, international alarm has risen: From France to Japan governments organized evacuations, while Hong Kong planned to suspend rail and ferry links with the mainland.


Today we have significant tier 1 Australian inflation data with Q4 CPI released at 11.30am today.

The Q3 CPI lifted 0.5% compared to the market median of 0.5%. The annual rate lifted to 1.7%yr, from 1.6%yr, and while a modest acceleration from 1.3%yr in Q1 it remains below the bottom of the RBA’s target band. Boosting the CPI is an 8.5% rise in tobacco and the 5.5% rise in auto fuel prices which combined make a 0.47ppt contribution. There is something of a drought impact in food prices (1.2%qtr/0.19ppt) but as yet no bushfire effect which, if present, could appear in Q1 2020. Outside the above, prices are close to flat or falling.


Tonight’s focus will be on the Federal reserve – no change expected / on hold for now.

AUD price action remains around 0.6750 for now, watching today’s CPI data – any deviation lower from the forecasts could drive AUD lower to test 0.6700 supports.


TECHNICAL OUTLOOK


AUD holds below a big Fibonacci level. AUD bounces meagrely early NY as USD/CNH slips below 6.9700.

Lift can't hold above 76.4% Fib 0.6670-0.7032; commodity, yield falls weigh. AUD/JPY bounce from day's low give no help to AUD, sits near 0.6745 late.

Clean break of 76.4 Fib, falling daily & monthly RSIs bolster bearish techs. Australian Q4 inflation due in Asia, if downbeat AUD & AU yields could fall.



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