OVERNIGHT DATA & HEADLINES
• U.S. and European shares advanced and Treasury yields ticked higher as China struck a hopeful tone on trade relations with the U.S. and as Italy appeared close to forming a new government and resolving its political crisis.
• U.S. economic growth slowed in Q2 but the strongest consumer spending in 4-1/2 years amid a solid labour market threw cold water on financial market expectations of a recession. GDP increased at a 2.0% annualised rate, a downward revision from the 2.1% pace estimated last month. The economy grew at a 3.1% rate in the January-March quarter. It expanded 2.6% in the first half of the year. The average of GDP and GDI, also referred to as gross domestic output and considered a better measure of economic activity, rose at a 2.1% rate last quarter, slowing from a 3.2% pace of growth in the first three months of the year.
• The goods trade deficit narrowed 2.5% to $72.3 billion in July as exports rebounded. Exports of goods rose 0.7% as an acceleration in shipments of motor vehicles, capital and consumer goods offset a plunge in industrial supplies and agricultural exports. The decline in agricultural shipments probably reflects a drop in soybean exports to China.
• U.S. retail inventories jumped 0.8% in July after falling 0.3% in the prior month. Retail inventories, excluding motor vehicles and parts, the component that goes into the calculation of GDP, rebounded 0.3% last month after dropping 0.2% in June.
• China's commerce ministry said Beijing and Washington were discussing the next round of face-to-face talks scheduled for September. The comments spurred hopes for progress in the talks and boosted the CNY, which snapped a 10-day losing streak. U.S. Treasury yields moved off recent lows as stocks rose on the trade comments from China.
• Italy's president asked former Prime Minister Giuseppe Conte to return to head up a new coalition of the anti-establishment 5-Star Movement and the opposition centre-left Democratic Party. The coalition is a step toward resolving a three-week political crisis triggered after League leader Matteo Salvini pulled his hard-right party out of its governing alliance with 5-Star.
• The Dow Jones rose 326.15 points, or 1.25%, to 26,362.25, the S&P 500 gained 36.64 points, or 1.27%, to 2,924.58 and the Nasdaq added 116.51 points, or 1.48%, to 7,973.39.
• Benchmark 10-year Treasury notes last fell 8/32 in price to yield 1.4928%, from 1.468% late on Wednesday.
• U.S. 2yr treasury yields rose from 1.49% to 1.54%, the 10yr yield from 1.44% to 1.53%. Markets are pricing 27bp of easing at the 19 September Fed meeting, and a terminal rate of 0.97% (Fed funds rate currently 2.13%).
• Australian 3yr government bond yields rose from 0.67% to 0.70%, the 10yr yield from 0.87% to 0.93%. Markets are pricing 2bp of easing at the 3 September RBA meeting, and a terminal rate of 0.38% (RBA cash rate currently at 1.0%).
• Market pricing for RBNZ is for 6bp of easing on 25 September, with a terminal rate of 0.56%.
• Spot gold last fell 0.73% to trade at $1,527.60 per ounce. Silver also eased 0.55% to $18.23 an ounce after hitting its highest level in more than two years.
• U.S. crude extended its gains on data showing a sharp fall in U.S. inventories, with the approach of Hurricane Dorian toward Florida also raising concerns that offshore producers may slow output if the storm passes into the Gulf of Mexico. U.S. crude settled 1.67% higher at $56.71 a barrel, while Brent settled at $61.08 a barrel, up 0.98%.
• Iron-ore fell 2.0% to $81
• The DXY rose 0.24% rising to 98.55 (settled 98.44)
• EUR was down 0.19% to $1.1056.
• USD/JPY weakened 0.34% at 106.50
• GBP was last trading at $1.2180, down 0.24% on the day.
• CNY was last 0.33% higher at 7.1448 per dollar.
• AUD remained heavy although managed to hold above 0.6717 – yesterday’s domestic session low.
• NZD made a fresh four-year low at 0.6308.
• AUD/NZD continued its march higher to 1.0671 – the highest since May.
EVENT RISK TODAY
• NZ: Consumer confidence fell in July to below average. August’s reading will be of interest because it will capture the RBNZ’s 50bp rate cut.
• Australia: Jul dwelling approvals are expected to be flat. Jul private sector credit growth is anticipated to maintain a slow pace, up 0.2%.
• Europe: Jul unemployment is seen to hold at 7.5%. Aug CPI is expected to show annual core inflation edge up to 1.0%yr from 0.9%yr.
• US: Jul personal income is anticipated to rise 0.3% with personal spending up 0.5%. annual Core PCE inflation is seen to remain flat at 1.6%yr.
AUD thoughts :
Market sentiment was on the improve in offshore trade and the brief respite saw currencies lose some ground to the USD. That said, markets remain fragile more broadly and month-end flows are likely to dominate price action over the coming days with speculation of a USD-selling bias against most pairs.
AUD was again somewhat sidelined although managed to hold above yesterday’s sub-0.6720 lows. Demand is still likely lying ahead of 0.6700 while offering interest is expected to dominate order books and rests ahead of 0.6790.
The AUD’s lacklustre reaction to news suggesting a de-escalation in U.S.-Sino trade tensions has been worrying. China first eased tensions when Commerce Ministry spokesman Gao Feng said it was important to create needed conditions for both sides to continue negotiations. The comments boosted riskier assets and high beta currencies. AUD rallied near 0.6760 but no further.
Instead of rallying on Trump's comment, AUD slid below 0.6720. That price action indicates that bears retain control of AUD, bolstering already negative technicals.
The 10- and 21-DMAs are limiting gains and RSIs continue to fall, suggesting continued downside momentum. Good support sits at 0.6675/80 and it is likely to be tested soon. Should that support give
way, AUD will extend its long-term bear trend. Psychological support at 0.6500 as well as the 0.6240/90 zone, where the March and February 2009 lows sit, will then be targeted.