OVERNIGHT DATA AND HEADLINES
• Government debt yields and a gauge of global equity markets rose overnight as sentiment improved after U.S. President Donald Trump said trade talks with China were going "very well" and a news report suggested key differences were being ironed out. U.S. President Trump said that trade talks with China were going "very well," sounding more positive than on Tuesday when he said a trade deal might have to wait until after the 2020 U.S. presidential election.
• U.S. services sector activity slowed more than expected in November amid lingering concerns about trade tensions and worker shortages. ISM non-manufacturing activity index fell to a reading of 53.9 in last month from 54.7 in October. A reading above 50 indicates expansion in the services sector, which accounts for more than two-thirds of U.S. economic activity.
• U.S. private-sector job growth unexpectedly slowed to its weakest pace in six months in November, and goods producers and construction firms cut jobs. U.S. companies' payrolls rose by 67,000 last month, the ADP National Employment Report said. The median forecast among economists polled by Reuters called for a gain of 140,000 jobs, with estimates ranging from 120,000 to 188,000. It was the lowest monthly gain since May when just 46,000 jobs were created, the fewest since 2010, and continues a trend of decelerating job growth that has taken hold this year. Private payroll gains in the month earlier were revised down to 121,000 from an originally reported 125,000 increase.
• Wall Street was set to break a three-day losing streak - Dow Jones up +0.78% at 27,716, S&P 500 up +0.82% at 3,118 and the Nasdaq up +0.71% at 8,581.
• Bank of Canada left rates on hold at 1.75% (widely expected), though were less dovish than generally expected in the accompanying statement. In particular they noted trade tensions and uncertainty though expected the global economy to stabilise with the Canadian economy seen as resilient.
• The USD fell to a one-month low – DXY index fell 0.07% to 97.67 after earlier dropping to a one-month low of 97.433.
• CNY dropped to its weakest level since late October, crumbling 0.6% to its weakest level since Oct. 18 but managed to recoup all losses in late trade down to 7.0490.
• GBP continued to rally up towards 1.3100 from 1.3000.
• EUR saw an initial spike towards 1.1110 but fell back down to 1.1075.
• AUD slipped from three-week highs towards 0.6810 after disappointing GDP data however retraced all losses to end back up at 0.6853.
• USD/CAD fell from around 1.3275 to hit lows of 1.3190.
• AUDEUR jumped up towards 0.6190 highs
• AUDNZD fell towards 1.0470 lows but found some highs just shy of 1.0500.
• U.S. Treasury yields rose on a more positive outlook for a trade deal with China and showing the market zeroed in on slight changes in comments from U.S. President Donald Trump.
• The benchmark 10-year yield was up 7.4 basis points at 1.78% in afternoon trading as the global appetite for risk increased. The two-year yield rose 5.2 basis points to 1.582%.
• The spread between the two- and 10-year yields widened 2.05 basis points to close at 19.20.
• Euro zone government debt yields rose, retracing some of the previous day's steep falls. Germany's 10-year bond yields inched up around 3 basis points to -0.315%.
• Gold shrugged off earlier gains to fall on a report suggesting progress on the U.S.-China trade negotiations. Spot gold slipped 0.22% to $1,474 per ounce. Prices hit $1,484 earlier in the session.
• Iron ore futures in China rose, extending gains into a second session, as data showed shipments from Brazil dropped last week. Benchmark spot 62% iron ore stood at $89.5 per tonne, rebounding from three consecutive sessions of declines.
• Copper rose on reports of progress towards an initial U.S.-China trade deal. LME copper prices ended 1.2% higher at $5,886 a tonne after shedding 1.1% in the previous session.
• Oil prices surged 4% on expectations that OPEC and allied producers would extend production curbs, and as U.S. government data showed a large drop in domestic crude stockpiles. Brent crude futures were up $2.52, or 4.1%, at $63.34 a barrel. U.S. West Texas Intermediate (WTI) crude futures were up $2.39, or 4.3%, at $58.49.
ECONOMIC DATA RELEASES
• Australian Oct retail sales (last 0.2%, market f/c 0.3%). Another lacklustre month of sales expected.
• Australian Oct trade balance (last $bn 7.2, market f/c $6.5). Surplus in descent from record high, exports lower, –2.8%.
• New Zealand Q3 building work put in place & RBNZ bank capital announcement
• Europe - Q3 GDP 3rd estimate (last 0.2%, market f/c 0.2%). Annual pace holding at 1.2%yr.
• German Oct factory orders (last 1.3%, market f/c 0.7%). Tentative signs contraction is stabilising.
• US Initial jobless claims 213k
• U.S. October trade balance (last US$bn –52.5, market f/c –48.9). A trade deal is unlikely to materially affect deficit.
• U.S. Oct factory orders (last –0.6%, market f/c 0.1%). Durable goods orders surprised to upside on first estimate.
AUD regained stability overnight as an initial reaction to yesterday’s GDP release saw a fall from 0.6850 down towards 0.6810. Positive reports on trade negotiations and dismal U.S. Economic data saw AUD elevated back to 0.6850 levels where it opens this morning. Reuters quoted China officials as suggesting that the House of Representatives’ approval of a bill requiring the US administration to toughen its response to China in view of its alleged rights violations in Xinjiang could set back trade talks. While the pressure tactics of the negotiation play out in public, we doubt the tariff increase scheduled for Dec. 15 will take effect, but a ‘phase 1’ deal may not be concluded until early 2020.
Today in Australia we have some tier 1 releases in October retail sales and trade balance data. Expectations range towards the lower side with lacklustre sales and exports lower.
Australian Oct retail sales due, if upbeat result seen AUD rally likely extends.
The ADP figures last night come ahead of the U.S. Labour Department's more comprehensive non-farm payrolls report on Friday, which includes both public and private-sector employment.
Economists polled by Reuters are looking for U.S. private payroll employment to have grown by 175,000 jobs in November, up from 131,000 the month before. Total non-farm employment is expected to have risen by 180,000 after climbing by 128,000 in October. The unemployment rate is forecast to stay steady at the 3.6% recorded a month earlier.
AUD buoyant overnight despite yesterday GDP-induced selling pressures. Offering interest is expected to remain in the 0.6875 region while demand likely lies ahead of 0.6800.
AUD lifts in NY, Bloomberg report on trade helps boost early-on. USD/CNH slide below 7.0500 also helps AUD hit 0.6855. Very little pull back from day's high, suggests longs remain confident.
Immediate resistance at 0.6876 (50% Fibonacci retracement). Confident longs would then target the 200-DMA & October's high at 0.6917.