• Trump ignites multiple fronts on trade war – Mexico on Friday and India on Saturday
• Sharp declines on Friday end a torrid month for global equities
• Safe haven demand drives big rally in UST– led by front end yields
• Low inflation along with the prospect of slower growth increase Fed rate cut expectations
• Lower UST yields weigh on the big dollar - JPY followed by CHF the big beneficiaries
• AUD and NZD also gain ground against the USD in spite of risk off environment – Month end flows at play?
• China to compile list of “unreliable” foreign companies- Fed Express in the line of fire
• China’s releases White paper on trade- China doesn’t want a trade war, but won’t shy away from one
• Google on antitrust investigation – news don’t augur a positive start for Tech sector in the new week
• The US dollar index closed down 0.4% on the day.
• EUR rose from 1.1130 to 1.1180.
• USD/JPY fell from 109.00 to 108.28 – a five-month low – and the yen was the best performer on the day.
• AUD rose from 0.6905 to 0.6944, the weaker USD dominating the risk averse mood.
• NZD similarly rose, from 0.6495 to 0.6547.
• AUD/NZD fell from 1.0630 to 1.0600.
• Brent crude oil fell 3.7%% to $62 – the lowest since 8 March, as markets expect demand to be affected by the global trade tensions. Safe-haven gold rose 1.3% to $1306 – a six-week high.
This week, the focus shifts to China and Australian data. Early Monday, China will release the Caixin Manufacturing PMI report. It is expected to come in at 50.0. A number below 50.0 will signal a weakening economy. This could drag the Aussie Dollar lower.
Early Tuesday, Australia will release its Retail Sales report. It is expected to come in at 0.2%. However, traders are not likely to show too much of a reaction to this report because on Wednesday, the Reserve Bank of Australia (RBA) will release it interest rate decision and monetary policy statement.
The RBA is expected to cut its benchmark rate by 25 basis points to 1.25%. Traders aren’t too worried about this rate cut because it has been telegraphed for weeks. The key question is how many more rate cuts will follow.
ANZ economists said, “We and the market will be shocked if the RBA doesn’t cut in June. RBA governor Philip Lowe will issue a statement accompanying the rate decision, but clues about further rate moves may come from his speech to a RBA board dinner with the business community in Sydney Tuesday night.
Economists expect there will be a second 25 basis points decrease in the cash rate to 1.0 percent in coming months, likely in August. Traders aren’t sure how long the rate cuts will go on. Westpac says a third cut may come in November, while JP Morgan predicts four reductions to take the cash rate to 0.5 percent by mid-2020.
Early Wednesday, Australia will release quarterly GDP figures. Look for a 0.4% reading, up from 0.2%.
• 0.6860 acts as strong support, for now, a break of which can call the year 2016 low near 0.6830 on the chart with 0.6800 to follow afterward.
• Alternatively, 0.6940, 0.7000 and 50-day simple moving average (SMA) level near 0.7035 may entertain buyers during pullback.
Event Risk Data
• NZ: has a holiday, Queen’s Birthday.
• Australia: Q1 Business Indicators report will provide partial data for Wednesday’s GDP release. Company profits are expected to rise 2.8% (fcs 2.0%) on higher commodity prices while inventories are flat (fcs -0.1%). May CoreLogic home value index is anticipated to decline 0.4% as the pace of slippage continues to moderate.
• US: May ISM manufacturing is expected to edge up to 53.0 from 52.8, in contrast to the sharp drop in the flash Markit PMI to 50.6. Apr construction spending is expected to rise 0.5% with public spending a positive against soft private momentum. Fedspeak involves Daly at an Asian bankers event in Singapore, Quarles on the transition away from LIBOR, Barkin to the Charlotte Economic Club, and Bullard on monetary policy.
• May Markit manufacturing PMI’s are released for a number of Asian countries as well as the final results for Japan, Europe and the US.