OVERNIGHT DATA AND HEADLINES
• US markets were mostly closed for the Labour Day holiday, although S&P500 futures did trade and are down 0.8%, while the USD was slightly firmer. China and the US are reportedly struggling to agree on a September meeting on trade, and UK PM Johnson threatened a general election.
• The United States began imposing 15% tariffs on a variety of Chinese goods on Sunday - including footwear, smart watches and flat-panel televisions - as China put new duties on U.S. crude, the latest escalation in a bruising trade war. U.S. President Donald Trump said the two sides would still meet for talks this month. Trump, writing on Twitter, said his goal was to reduce U.S. reliance on China, and he again urged American companies to find alternative suppliers outside China.
• UK political uncertainty increased. Opposition groups appear to be set to introduce legislation to force a delay of the Brexit deadline until end-January by attempting to take control of the Government’s order of business for Parliament. PM Johnson is to deliver a key speech to Parliament tomorrow relating to the proposed suspension of Parliament and the Queen’s Speech on 14 October. The net impact is increased potential of for a general election. PM Johnson said he will call an election for 14 October if he loses a Brexit vote.
• UK August manufacturing PMI at 47.4 missed weak expectations of 48.4 (prior 48.0) and underscored the negative impact of the protracted uncertainties over a no-deal Brexit
• Eurozone final August manufacturing PMI was unchanged from the flash releases at 47.0, as expected. Although the national PMIs appeared to be mildly firmer than the flash readings had implied, German final manufacturing PMI proved to be even softer than its flash reading (43.5, flash 43.6) and so left the regional PMI unchanged. Negative implications for the German economy and risks of both contraction and emerging deflationary pressures were cited by Markit in their write up.
• The physical US treasury bond market was closed for the holiday, although futures did trade, implying the 10yr yield ranged between 1.48% and 1.53%
• Markets are pricing 27bp of easing at the 19 September Fed meeting, and a terminal rate of 0.94% (Fed funds rate currently 2.13%).
• Australian 3yr government bond yields ranged between 0.68% and 0.71%, the 10yr yield between 0.91% and 0.96%. Markets are pricing 3bp of easing at the 3 September RBA meeting.
• Market pricing for RBNZ is for 4bp of easing on 25 September, with a terminal rate of 0.58%.
• Oil prices weakened after new import tariffs imposed by the United States and China came into force, raising concerns about a further hit to global economic growth and demand for crude. International Brent crude futures settled down 59 cents to $58.66 a barrel, after trading as low as $58.10 during the day. U.S. benchmark WTI crude was down 33 cents at $54.77 a barrel.
• Indonesia said on Monday it will stop nickel ore exports from Jan. 1, 2020, two years earlier than initially indicated, as it speeds up efforts to process more of its resources at home. Nickel prices have surged on speculation about an expedited ban and Monday's announcement. The three-month LME nickel rose as much as 5.3% to $18,850 a tonne on Monday, its highest in nearly five years, adding to Friday's 9% gain.
• Other commodities in short : Nat. gas +1.0%, Cotton 0%, Copper -0.6%, Wheat -3.9%, Sugar 0%, Iron ore +3.4% Gold at 1528/oz
• The US dollar index is up 0.1% on the day, and at a two-year high.
• EUR fell from 1.0995 to 1.0958 – the lowest since May 2017.
• GBP underperformed, falling from 1.2170 to 1.2036 after the election threat.
• USD/JPY ranged between 106.05 and 106.40.
• AUD eked a slightly lower range of 0.6710-0.6730.
• NZD ranged between 0.6300 and 0.6320.
• AUD/NZD slipped from 1.0675 to 1.0640.
• AUDEUR remained for the most part rangebound between 0.6110 / 0.6135
EVENT RISK TODAY
• Australian July retail sales – market expecting 0.2% from 0.4% in June. Belief that it’s too early for interest rate cuts and tax rebates to provide support to retail sales.
• RBA will announce its cash rate decision. Widely tipped for no change – rates to remain @ 1.0%. The Bank has stressed that it has an easing bias but is currently in “watch and see” mode and would need an accumulation of evidence to justify a lower cash rate.
AUD thoughts :
Local data dominates the Australian calendar today with the release of July retail sales, current account balance & RBA interest rate announcement.
AUD has been consolidating ahead of the RBA announcement and retail sales data so some event risk is certainly on today’s agenda.
AUD is currently trading at 0.6714 having travelled between a range of 0.6735 and 0.6710, -0.28% since the Asian open in US Labour day markets overnight.
Financial markets are expecting the RBA to keep the cash rate on hold at 1% with a potential easing to resume in October 2019. The language of the statement will determine if the RBA are open to cutting the cash rate further 'if needed' but will require 'additional evidence' for it to move. If the Bank removes 'if needed' from the statement, it could suggest they are inclined to cut the cash rate in October.
It has been a ‘race to the bottom theme’ throughout this year with analysts expecting the Federal Reserve to also cut interest rates, joining the syndicate of global central banks which is helping to support the AUD, where, otherwise, forecasts for two further cuts from the RBA could have seen AUD at the lower end of the 0.60s by now. Indeed, The Australian economy continues to provide additional evidence that the central bank needs to move with data looking quite grim to say the least : poor Q2 construction & building approvals, inflation, wages, and unemployment forecasts revised downwards in August and the heightened global uncertainty stemming from trade wars.
Technical outlook :
The 5, 10 & 21 daily, weekly and monthly moving averages head south – bearish setup. Next stop last week's 0.6690 low, then the 0.6677 Aug and 2019 base.
Sustained 0.6677 break opens the door to 0.6263, 76.4% 2001/2011 rise. Today's 0.6715 low supports, 0.6750-60 620M and 0.6775 383M strikes cap