OVERNIGHT DATA & HEADLINES
• Risk-off dominated the weekly close, following news suggesting that the US is considering putting limits on the United States investors' portfolio flows into China and delisting Chinese companies from the US stock exchanges.
• US personal income met expectations, rising 0.4%m/m in August.
• Durable goods orders were mixed in Aug but overall firmer than anticipated. Headline orders edged up +0.2%m/m (est. -1.0%m/m).
• Univ. of Michigan consumer confidence survey lifted to 93.2 (initial estimate 92.1, July 89.8) mostly on solid current conditions (108.5, prior 106.9) but also expectations (83.4, prior 82.4).
• Eurozone Sept. economic confidence missed estimates (-0.22, est. +0.11), reflecting the broad weakening in other surveys. Disappointing German Aug. import prices (-0.6%m/m and -2.7%y/y, est. -0.3%m/m and -2.6%y/y) and French Aug CPI (headline +1.1%y/y and core +0.9%y/y, est. 1.3%y/y and 1.0%y/y) underscored the risk that inflation pressures are to the downside.
• Brexit chaos continues, alongside headaches for UK PM Johnson. During the weekend, the UK PM further hinted he is looking to bypass the law and that he has no intentions of asking for a delay in a televised interview, saying that the UK can still leave the Union on October 31. Furthermore, news agencies reported that the PM had been formally referred for potential investigation over misconduct in public office when he was mayor of London, over allegations about a conflict of interest.
• Fed's Harker stated ‘officials should hold firm on rates, let things settle’. In his prepared remarks delivered at the Shadow Open Market Committee Fall 2019 Meeting in New York, Harker argued that officials should hold firm on rates and let things settle. "Inflation is on track to meet 2% goal," Harker noted and projected the 2019 GDP growth to be 'a little above 2%.' "It is possible reserves are approaching their appropriate level, may need to resume organic growth of balance sheet earlier than anticipated," Harker added. "Discussions of a standing repo facility are in their infancy."
• Equities closed in the red - political turmoil around Trump’s impeachment weighed. Dow fell 71 points (0.26%) 26,820, S&P 500 fell 16 points (0.53%) 2,961, NASDAQ lost 91 points (1.13%) to 7,939.
• Gold struggled to make gains (down -0.53% at $1,506.40 an ounce) having travelled from $1507.42 highs to a low of $1487.10 following a stronger USD and US yields
• Oil was lower again on Friday, with WTI crude travelling from a high of $56.75 to a low of $54.79 and ending the day down -0.80%. The partial cease-fire between Saudi and Yemen continues to see the geopolitical risk premium priced out of markets. Brent crude futures fell 83 cents (1.3%) to settle at $61.91 a barrel, after dropping to a session low of $60.76 a barrel.
• Dalian iron ore bucked the trend, extending Thursday's gains as it rose 1.6% to 642.50 yuan a tonne. Prices for spot cargoes of benchmark iron ore with 62% iron content for delivery to China slipped to $92.50 a tonne from $93 the day before.
• Aluminium prices were set for their biggest weekly decline since last October as falling alumina prices and a weak demand outlook dragged it to its lowest level since January 2017.
• Benchmark aluminium ended 0.1% down at $1,735 a tonne after touching $1,721.50, losing more than 3% over the week. Benchmark copper closed 0.8% up at $5,767 a tonne.
• The Treasury yield curve steepened following reports that President Donald Trump's administration is considering delisting Chinese companies from U.S. stock exchanges.
• U.S. 2 year note yield was last 2.1 bp lower to trade at 1.634%. Benchmark 10-year yield was up less than a basis point to 1.694%. This left the spread between the two bonds at 5.6 basis points.
• French and Spanish 10-year bond yields were down 6-9 basis points, their biggest weekly falls in six weeks.
• Australian 3yr government bond yields traded around 0.68%, 10yr yields between 0.94% and 0.98%. Markets are pricing 18bp of easing at the 1 October RBA meeting, and a terminal rate of 0.45% (RBA cash rate currently at 1.0%).
• The U.S. DXY was lower 0.5% as it held around the 99 handle.
• EUR fell to more than two-year lows against the USD as a weak European growth outlook weighed. EUR dropped as low as 1.0903 (lowest since May 2017) before rising back to 1.0950.
• GBP also fell, weakened to a two-week low of 1.2269, after Bank of England policymaker Michael Saunders hinted at looser monetary policy if Brexit uncertainty remained prolonged.
• CNY slipped to its weakest in three weeks ahead of a high-level meeting in Washington. Onshore CNY softened 0.08% to 7.1370. Offshore CNH weakened by 0.07% and traded at 7.1320.
• USD/JPY rose from 107.50 to 107.95 via 108.18.
• AUD rose from 0.6750 towards 0.6780.
• NZD ranged between 0.6280 and 0.6310.
• AUDNZD rose from 1.0730 to 1.0755.
• AUDEUR remained above 0.6160, trading up towards 0.6195
EVENT RISK TODAY
• Australian Economic data today : September MI inflation gauge & Australian August private sector credit.
• NZ business confidence fell to a post-GFC low in Aug and is expected to remain weak in Sep. Aug dwelling consents are likely to edge lower again, but the level remains elevated.
• China PMIs should continue highlighting global uncertainties’ heavy impact on China’s business community.
• UK GDP final estimate to confirm Q2 contraction. Euro Area unemployment and German inflation are also due.
• US: Chicago PMI and Dallas Fed survey will give regional colour on manufacturing industry.
AUD thoughts :
This week’s Australian event risk is Tuesday's RBA cash rate decision with a 25bp cut to 0.75% the consensus expectation (albeit not fully priced).
Looking at the week ahead, the focus will revert to global manufacturing and the US jobs market following the unexpectedly soft August non-farm payrolls report. A moderate rebound in the pace of hiring alongside a slight uptick in the year-on-year rate of growth of average hourly earnings is expected. We expect payrolls to increase by 150k in September, following the below-consensus 130k August print. Jobs in the goods sector should remain soft, while we look for a modest rebound in services. The household survey should show the unemployment rate remaining steady at 3.7%, while wages are expected to rise 0.2% m/m, leaving the annual rate unchanged at 3.2% y/y.
Technical outlook :
AUD longs' defence of a key Fibonacci looks fragile. AUD buoyed above 76.4% Fibonacci @ 0.6729 (0.6678-0.6895) on positive risk sentiment.
AUD dips below 0.6750 but lifts above 0.6760 late in the day. Rising RSIs give techs a bull tint; 21 day moving average, daily cloud are big hurdles
RBA meeting Oct. 1, high probability of 25bps cut still exists.