5th July 2019 - Markets cautious ahead of US Job numbers this evening

Good Morning,

Market Headlines

- Markets were fairly stable during the US holiday. S&P500 futures nudged to a fresh record high, and German bond yields slipped to a record low

- US 10yr treasury futures’ yields remained at 1.94% - the lowest since 2016. Markets priced 32bp of easing at the July meeting, with a total of four cuts priced by mid-2020. German 10yr government bond yields touched -0.40% - a record low and also the first time the bond yield has matched the ECB deposit rate – as markets priced in 13bp of easing from the ECB in September.

- Australian 3yr government bond yields were stuck between 0.90% and 0.91%, 10yr yields between 1.29% and 1.30%. Markets are pricing only a 20% chance of an RBA rate cut in August.

- Commodities: After gaining 97% since December, iron ore took a breather, falling 4.6% from $127.15 to $121.15 after CRU Group forecast improving supply and weaker China steel demand.


- The US dollar index is unchanged on the day.

- EUR ranged sideways between 1.1270 and 1.1295.

- USD/JPY ranged sideways between 107.70 and 107.90.

- AUD/USD slipped from 0.7035 to 0.7015.

- NZD similarly slipped from 0.6705 to 0.6678.

- AUD/NZD nudged higher from 1.0490 to 1.0510.

AUD Thoughts

- Sluggish data from Eurozone and absence of positive news on the trade despite a recent truce between the US and China kept a lid on market sentiment. Given the US markets’ off, the European bonds were in the spotlight where Germany’s 10-year bund yields slipped to the European Central Bank’s (ECB) deposit rate for the first time in history.

- Lack of momentum, soft statistics at home and pessimism surrounding the future steps from global central banks dragged the AUD/USD from a 2-month high.

Caution prevails at the global markets as investors await the return of the US traders from the Independence Day holiday whereas second-tier Aussie data, uncertainty surrounding the US-China trade truce and the US employment report together forms a key day to observe going forward.

Looking forward, Australia’s June month AiG Performance of Construction Index will be the first catalyst to follow while trade headlines and the US job numbers for the previous month will be on the trader's radar then after.

The Aussie data has been on a back foot for the last two months as it flashed 40.4 figure during May. Further, the US Nonfarm Payrolls (NFP) is expected to increase to 160K from 75K prior whereas the Average Hourly Earnings could rise 3.2% from 3.1% on a YoY basis. Also, no change is expected to take place in a 3.6% unemployment rate.

At the trade front, the US side news/views for China continues to flash mixed signal concerning the success of the next week’s trade discussion between the diplomats of the world’s two largest economies.

Technical Outlook

May month top around 0.7050 and April-end high near 0.7070 hold the keys for the pair’s further run-up to 200-day exponential moving average (EMA) level of 0.7112 until then bears may aim for 0.7000 round-figure and the current month bottom close to 0.6955

Event Risk Data Today

- Germany: May factory orders are expected to edge down 0.2% in the month with the annual pace of decline hitting 6.2%yr.

- US: Jun nonfarm payrolls are anticipated to bounce back after a soft read in May (+75k in the month and the previous level revised down by 75k). Consensus for Jun is for a 160k increase in employment with the unemployment rate holding at 3.6%. The trend lower in average hourly earnings is seen to stabilise, edging up to 3.2%yr from 3.1%yr in May

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