29th November 2020 - Busy week ahead on the data front, today's China PMI to kick things off


Good Morning,


Market Headlines

US equity markets rose further, the S&P500 closing up 0.2% to a fresh record closing high. The defensive US dollar fell, but so too did bond yields, the latter suggesting some caution as Covid cases and shutdowns persist. Commodities, Brent crude oil futures rose 0.8% to $48.20, copper rose 2.7%, iron ore rose 0.1% to $130.00, and gold fell 1.5%.


Currency

AUD/USD: 0.7365 – 0.7399 (three-month high)

EUR/USD: 1.1914 – 1.1965 (three-month high)

GBP/USD: 1.3294 – 1.3381

USD/JPY: 103.90 – 104.21

USD/CAD: 1.2972 – 1.3010

NZD/USD: 0.7011 – 0.7038 (highest since June 2018)

AUD/JPY: 76.63 – 76.95

AUD/NZD: 1.0502 – 1.0516


AUD Thoughts

The week kicks off to a busy start with the release of November PMIs for the US, EU and Asian countries along Q3 Australian GDP are the key data pieces. All are important indicators to watch to assess the economic impact from the latest round of lockdowns.


Today’s main event is China’s November PMIs which will be released at midday Sydney time. Markets are expecting PMIs to stay in an expansionary regime for the ninth consecutive month post the COVID lockdown although, the index may be peaking or may have already peaked. On manufacturing, the strength may have peaked in September although high-frequency indicators such as operating rate of steel mills are still robust, we think the sector may soften in the coming months on the back of the policy normalization. On the other hand, the recovery momentum in the services sector strengthened in the past two months, with the Services PMI hitting decade-highs. This momentum could continue, but the downside risk are rising due to recent increase in COVID-19 cases.


AUD/USD made new highs of 0.7399 \on Friday with the next level of resistance not expected until the psychological barrier at 0.7500. Demand has likely followed spot higher and rests around 0.7325 and again at 0.7300.


Event Risk Data Today

Australia: Company profits surged 15% in Q2, likely stemming from the unprecedented income transfer from the government. With the money from Canberra still flowing and the economy reopening, markets are predicting a rise of 6.0% in Q3. Following this, markets expect that increased output and the snap-back in imports will drive a 1.0% increase in Q3 inventories (adding 1.4ppts to GDP). October private sector credit should rise 0.1% as expanding housing credit outweighs further declines in business and personal. Although the Melbourne Institute inflation gauge remains at 1.1%yr ahead of the November update, the trimmed mean measure sits at -0.1%yr.


New Zealand: The final result of November ANZ business confidence is likely to hold around pre-Covid levels.


Japan: Industrial production is set to increase again in October (market f/c: 2.2%), but the pace of recovery is slowing.


China: The November manufacturing PMI (market f/c: 51.5) and non-manufacturing PMI (market f/c: 56.0) will be supported by the resurgence of domestic and external demand.


US: The November Chicago PMI is expected to remain broadly stable (market f/c: 59.0), while the November Dallas Fed Index should decline to 15.8. Pending home sales fell 2.2% in September as thinning supply and elevated asking prices weighed on turnover. In October, the market anticipates that sales will rise 1.0%.

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