OVERNIGHT DATA AND HEADLINES
• US stocks managed to defy the odds and scraped out higher closes with the majority of the benchmarks ending in the green. Mixed consumer data, trade war noise, strong spending but declining sentiment all failed to give a clear-cut direction to Wall Street. Dow Jones rose 29 points (0.1%) to 26,392, S&P 500 closed 1 point higher at 2,926. Nasdaq fell 11 points or 0.1% to 7,963.
• Britain's main opposition Labour Party will do everything possible to stop a no-deal Brexit after parliament returns on Tuesday, its leader Jeremy Corbyn will say on Monday. Lawmakers opposed to the possibility of Britain leaving the European Union on Oct. 31 without an orderly transition arrangement are drawing up plans to try to legislate to force Prime Minister Boris Johnson to rule out a no-deal exit.
• U.S. consumer spending increased solidly in July as households bought a range of goods and services, which could further allay financial market fears of a recession, but the pace of growth in consumption is unlikely to be sustained amid tepid income gains. Consumer spending rose 0.6% last month after an unrevised 0.3% gain in June.
• Data from the July PCE report came in largely in line with expectations, with consumer spending growth rising slightly above consensus and our expectations at 0.6% m/m.
• Personal income rose less than expected by the market at 0.1%, however this followed a modest upward revision for June. On net, the consumer remains resilient at the start of Q3, despite the trade noise.
• Turning to inflation, the PCE data came out at 0.2% m/m for both headline and core (1.4% and 1.6% y/y, respectively).
• The final release of University of Michigan's Sentiment indicator not only confirmed the decline to 92.1 from 98.4 in the advance release but actually unveiled a deeper fall to 89.8 in Aug — its lowest level since October 2016. This decline stands in contrast with the signal by the Conference Board's confidence measure, which barely dipped in August.
• U.S. Treasury yields edged higher on hopes the U.S. and China will take steps to de-escalate their trade war, though trading volumes were muted before a U.S. holiday. The yield curve between 2-year and 10-year notes on Wednesday last week was the most inverted since 2007, at minus 6.50 basis points, a signal that a recession is likely in one to two years. Thirty-year bond yields fell to record lows of 1.905% but rose back to 1.992% on Friday.
• Factory activity in China shrank in August for the fourth month in a row as the Purchasing Managers' Index (PMI) fell to 49.5 in August, China's National Bureau of Statistics said on Saturday, versus 49.7 in July, below the 50-point mark that separates growth from contraction on a monthly basis. Export orders fell for the 15th straight month in August, although at a slower pace, with the sub-index picking up to 47.2 from July's 46.9.
• Oil futures fell, with U.S. crude down nearly 3% ahead of a hurricane near the Florida coast that could dampen demand, but prices were still headed for the biggest weekly increase since early July, boosted by an easing of U.S.-China trade rhetoric. Brent crude futures fell 65 cents (1.1%) to settle at $60.43 a barrel. U.S. WTI crude futures settled down $1.61, or 2.8%, at $55.10 a barrel.
• Gold prices fell on a slight recovery in equities markets and Treasury yields but was on track for a fourth-straight monthly gain as fears of a global recession and uncertainty on U.S.-China trade relations drove investors to safe havens. Spot gold fell 0.5% to $1,520.40 per ounce and has gained 7.4% so far this month.
• The DXY index was 0.38% higher at 98.884, closing the month little moved after having been whipped around by trade headlines.
• Against the USD, the offshore yuan CNH was 0.28% weaker at 7.163, set for a 3.69% fall in August, its biggest monthly drop since 1994.
• EUR fell below $1.1000 to its weakest since May 2017 as a multi-day downward shift in the single currency intensified. EUR fell to a 1.0961 low.
• GBP fell 0.2% to 1.2155, but outperformed the soft EUR.
EVENT RISK TODAY
• Today : Australia GDP partials, House prices and Job ads,
• China Caixin Manufacturing PMI,
• US celebrates Labour day
AUD thoughts :
AUD recovered from an early dip opening 0.2% down in early trade. News on Saturday that China factory activity shrunk for 4th month weighed.
Another broad based USD bid hit emerging currencies & high betas, USD/CNH rallied near 7.1700. Further drops in equities & commodity markets also help pressure AUD lower.
AUD found a fresh 0.6704 low but managed to regain composure back to around 0.6730.
Tariffs went into effect early Sunday on $112 billion of Chinese imports. The 15% tariffs covered a wide range of consumer goods, including everything from certain types of clothing and shoes to some consumer electronics like cameras and desktop computers. U.S. & China will kick off a new round of tariffs in trade war but will meet in September for further discussions.
An extremely heavy data week for the AUD with the focus to turn to Australian retail sales & RBA meeting on Tuesday, Q2 GDP on Wednesday.
Today it’s a U.S. holiday (Labour day) which will impact trade somewhat. News of note to watch will be the China Caixin PMI.
No change is expected from the RBA this week (to remain @ 1.00%) – pausing after the cuts in June & July with an easing widely expected to resume in October.
Technical outlook : Bearish, RSIs fall & AUD holds below falling 10 & 21-DMAs. No cut expected but dovish rhetoric likely. 0.6675/80 is key support, if cleared bears target 0.6500 & 0.6240/90.