OVERNIGHT DATA AND HEADLINES
• U.S. stocks were under the weather as traders returned from Labour Day holidays to poor ISM manufacturing data and no signs of a solution to the US/Sino trade spat whereby further tariffs kicked in over the weekend.
• The U.S. ISM manufacturing index arrived at 49.1 for August versus 51.2 in July which was the first sub-50 reading since August 2016 (3 years) and is the weakest figure since January 2016. This is a clear disappointment that will provide further fuel to the market and President Trump’s desire for further Federal Reserve interest rate cuts.
• The IHS Markit's Manufacturing PMI came in at 50.3 to surpass the market expectation of 49.9, it still posted its lowest reading since Sep 2009 to reaffirm the loss of momentum in the sector.
• The Dow Jones lost 285.26 points (1.1%) to 26,118.02, the S&P 500 index fell 20.19 points (0.7%) to 2,906.27. The Nasdaq dropped (1.1%) to 7,874.15, a drop of 88.72 points.
• The UK Parliament voted against the government and subsequently, MPs will vote to tomorrow to stop negotiations, Boris Johnson argues a general election will be the only way to sort out.
• Federal Reserve Bank of Boston President Eric Rosengren crossed the wires at the start of Wednesday’s Asian session. Some of his comments are directly related to the Fed’s future moves and the US economic condition. Key quotes: “US economic conditions 'relatively benign'.” “US inverted yield curve reflects challenging economic conditions abroad.” “Trade disruption, global economic weakness pose risks to US economy.” “Elevated risks to US economy have not become reality.” “Sees continued 2% US GDP growth if consumer continues to spend, global conditions don't worsen.” “If risks to US economy materialize, fed should cut rates aggressively.” “It's a good time to watch incoming data carefully to see if policy adjustments are needed.”
• Federal Reserve Bullard said that “aggressive” action needed given dive in U.S. bond yields, the impact of the trade war. Also stated the current fed policy rate “too high,” would be better to get to “the right point” now rather than in smaller steps. A 50 basis point cut would align central bank with market expectations. Calls trade debate a “reckoning” for the current world trading system that could take a long time to sort out.
• Chinese iron ore futures rose more than 4%, extending gains into a fourth session, as steel mills restocked raw materials even though top steelmaking cities carried out anti-pollution curbs. Benchmark 62% iron ore for delivery to China settled at $89 a tonne on Monday.
• Crude oil prices came under strong selling pressure as the disappointing data from the US revived concerns over a recession and its potential negative impact on the global growth, which is expected to weigh on the energy demand. WTI dropped to its lowest level in more than three weeks at $52.82 before staging a modest rebound, down 1.45% on the day at $53.98.
• Gold prices rose again on the return of investors after the Labour Day holidays. Gold up from a low of $1,521 to a high of $1,549.73 scored in recent trade following a sell-off in the USD.
• Commodities in short : Nat. gas +2.7%, Cotton -1.7%, Copper -2.1%, Wheat -0.9%, Sugar 0.5%,
• USD continued its slide in late trade - DXY fell from 99.35 towards 98.90
• AUD continued higher from 0.6700 supports up towards 0.6763 highs
• NZD jumped higher moving back above 0.6330
• USD/CAD fell to lows of 1.3323.
• GBP briefly up to 1.2105 amidst a stream of Brexit headlines though settled a little lower AT 1.2085.
• EUR climbed up towards 1.0975
EVENT RISK TODAY
• Australia - Q2 GDP (market exp +0.5%)
• China – August Caixin Services and Composite PMI
• Europe – August Services and Composite PMI
• US – July Trade Balance & Beige Book
• Canada – BOC monetary policy decision (to remain on hold @ 1.75%)
AUD thoughts :
As expected, the RBA kept its cash rate at an all-time low of 1% on Tuesday, expecting recent back-to-back policy easing to boost broader economic growth in coming quarters, though it left the door ajar for further cuts. Data out earlier showed Australia's household sector was battling wage growth and subdued home prices with retail sales unexpectedly falling 0.1% in July. Annual growth braked to 2.4%, the slowest pace since the start of 2018. RBA Governor Philip Lowe acknowledged domestic consumption was the main economic uncertainty, reiterating it was "reasonable to expect" lower for longer interest rates to help boost employment growth and inflation. "The Board will continue to monitor developments, including in the labour market, and ease monetary policy further if needed," to support growth and inflation targets, Lowe said in a short post-meeting statement.
Separate data yesterday showed Australian exporters enjoyed bumper sales last quarter gifting the country its first current account surplus in over four decades. The current account surplus came in at A$5.9 billion for the June quarter when analysts were looking for a A$1.5 billion windfall led by higher prices for its key resources - iron ore and coal. This is the first surplus since June 1975 and the largest on record.
Data out today is likely to show Australia's June GDP growth paced below the RBA's recently downgraded estimates, with housing construction and private consumption the biggest drags. Market consensus believes the economy likely expanded 0.5% in the second quarter compared with RBA's expectations of 0.8%. Annual growth is seen slowing to a decade low of 1.5%. Jobs growth tends to lag economic activity and expectations are for the unemployment rate to climb to 5.5% over the coming months.
AUD has managed to leverage off the better than expected Australian data / offshore U.S. data as the reversal extended into NY close.
Drops in stocks and commodities were ignored, downbeat US ISM manufacturing has bigger impact. US-Sino trade tensions linger but USD/CNH nears 7.1770, emerging currencies also buoyed.
AUD has rallied, piercing the 10 & 21 day moving averages near 0.6760. RSIs rise, bull hammer forms as 0.6675/90 support holds again, techs warning shorts.