OVERNIGHT DATA AND HEADLINES
New orders for U.S.-made goods suffered a record decline in March and could sink further as disruptions from the novel coronavirus fracture supply chains and depress exports. Factory orders dropped 10.3%, the largest decrease since the series started in 1992, after dipping 0.1% in February. Economists polled by Reuters had forecast factory orders would tumble 9.7% in March. Factory orders decreased 2.8% year-on-year in March. The report showed unfilled orders at factories dropping 2.0% in March after nudging up 0.1% in the prior month. Inventories at factories fell 0.8% in March after declining 0.4% in February. Shipments of manufactured goods decreased 5.2% in March after slipping 0.3% in the prior month.
There was a 65.3% decline in orders for ships and boats in March. Motor vehicle and parts orders dropped 6.7% in March. That offset a 63.7% surge in orders for defense aircraft and parts. Machinery orders fell 0.5% in March after decreasing 1.1% in February. But orders for electrical equipment, appliances and components orders increased 0.8% in March. The government also reported that orders for non-defense capital goods excluding aircraft, which are seen as a measure of business spending plans on equipment, dipped 0.1% in March instead of edging up 0.1% as reported last month. Shipments of core capital goods, which are used to calculate business equipment spending in the GDP report, fell 0.2% in March as previously reported.
The Trump administration is "turbocharging" an initiative to remove global industrial supply chains from China as it weighs new tariffs to punish Beijing for its handling of the coronavirus outbreak, according to officials familiar with U.S. planning. President Donald Trump, who has stepped up recent attacks on China ahead of the Nov. 3 U.S. presidential election, has long pledged to bring manufacturing back from overseas. The U.S. Commerce Department, State and other agencies are looking for ways to push companies to move both sourcing and manufacturing out of China. Tax incentives and potential re-shoring subsidies are among measures being considered to spur changes, the current and former officials told Reuters.
A series of Purchasing Managers' Indexes (PMIs) from IHS Markit across Europe and Asia fell deeper into contraction last month, with many diving to all-time lows and others hitting levels last not seen since the 2008-2009 global financial crisis. IHS Markit's final manufacturing PMI for the euro zone sank to 33.4, its lowest since the survey began in mid-1997 and far beneath the 50-point line dividing growth from contraction. Asian PMIs also suffered, with South Korea, the continent's fourth-largest economy and a global manufacturing powerhouse, skidding last month to its lowest reading since January 2009. Japan's PMI released last week similarly fell to an 11-year low.
Australian job advertisements suffered their largest ever fall in April as strict social distancing rules and business closures to combat the coronavirus all but crushed demand for labour. Monday's figures showed total job ads plunged 53.1% in April, from March when they dropped 10%. The fall was almost five times larger than the previous record of 11.3% in January 2009. Job ads averaged just 63,806 in April, down from 136,106 in March and 62.2% lower than a year earlier.
U.S. stocks ended higher as gains in large tech and Internet companies and rising oil prices outweighed concerns sparked by fresh U.S.-China tensions and downbeat sentiment from the annual meeting of Warren Buffett's Berkshire Hathaway. Dow Jones rose 26.07 points, or 0.11%, to 23,749.76, the S&P 500 gained 12.03 points, or 0.42%, to 2,842.74 and the Nasdaq added 105.77 points, or 1.23%, to 8,710.72.
USD gained, bolstered by safe-haven flows as risk appetite waned. The DXY index was up 0.3% at 99.63, rising for a second straight day.
EUR fell 0.8% to 1.0895 (from 1.0950) while GBP slid 0.45% to 1.2440.
USDJPY bucked the strong USD, falling towards 106.63 from a 107.07 high.
AUD fought back overnight, climbing up from 0.6372 lows yesterday to a 0.6435 high overnight.
NZD followed higher from a 0.6008 low to a 0.6055 high.
AUDNZD selling bottomed at 1.0575, spiking back up through 1.0600 to reach 1.0645.
AUDEUR also found renewed strength, jumping up from 0.5815 and briefly through 0.5900 (0.5903).
U.S. Treasury yields ended little changed, as heavy corporate debt issuance weighed on prices and brought yields off session lows after an early round of safe-haven buying.
The U.S. Treasury Department on Monday said it plans to borrow nearly $3 trillion in the second quarter of 2020 - a record for any quarter - as the federal government contends with the impact of the coronavirus. Additional details of Treasury's quarterly refunding will be announced at 08:30 a.m (1230 GMT) on Wednesday.
Yields fell early on concerns about rising tensions between China and the United States, which has threatened to retaliate over the spread of the novel coronavirus.
Benchmark 10-year note yields were last 0.64%, unchanged from Friday. The yields have held in a tight band between 0.543% and 0.785% for the past month.
The two-year U.S. Treasury yield was 1.4 basis points higher at 0.2018%.
The gap between yields on two- and 10-year Treasury notes was at 43.30 basis points, less than a basis point lower than at Thursday's close.
Gold rose as brewing tensions between the United Sates and China kindled fears of a new trade war and had investors seeking safe havens. Spot gold gained 0.4% to $1,705.62 an ounce.
Copper prices fell to their lowest in more than a week as worries resurfaced about shrinking demand in tChina and elsewhere. Benchmark LME copper was up 0.2% at $5,120 a tonne, earlier touching their lowest since April 22 at $5,060. Aluminium was down 0.2% at $1,483 a tonne, zinc slipped 0.6% to $1,901, lead added 0.2% to $1,633, tin firmed 0.9% to $15,140 and nickel was down 1% at $11,830.
Oil was up 3% as more countries announced they would begin easing coronavirus lockdowns and as crude supply cuts by the world's top producing nations and companies take hold. Brent crude settled at $27.20 a barrel, up 76 cents, or 2.9%, while U.S. West Texas Intermediate (WTI) crude gained 61 cents, or 3.1%, to $20.39 a barrel.
ECONOMIC CALENDAR TODAY
Australia - April AiG PCI (last 37.9)
Australia - April 18 payroll jobs and wages (ABS weekly update reveals sharp fall in employment).
Australia - RBA May policy decision (last 0.25%, forecast 0.25%). RBA eased policy aggressively in March, providing ongoing support.
New Zealand - March building permits (last 4.7%). Lockdown conditions resulted in fewer working days.
New Zealand - April ANZ commodity prices (last -2.1%). Sharp falls in meat and dairy prices expected.
Europe - March PPI %yr (last -1.3%, forecast -2.7%). Energy prices fell sharply in the February read.
US - March trade balance $bn (last -39.9, forecast -41.0). February showed narrowest balance in 3 years.
US - April ISM non-manufacturing (last 52.5, forecast 37.5). Expected to fall to a record low as service sector is hit hard.
US - Fedspeak (Evans, Bostic and Bullard to speak).
AUD THOUGHTS AND TECHNICAL ANALYSIS
AUD staged a valiant comeback overnight, rising up from yesterdays 0.6373 lows to touch a 0.6435 high as a mild ‘risk on’ scenario developed yet again in markets.
Closely correlated U.S. equities staged a comeback as did commodity prices and JPY selling which buoyed AUDJPY towards higher pricing. Equity futures and risk-sensitive AUD have been highly correlated since the end of February when the COVID-19 outbreak sent risk markets reeling.
Today’s focus will remain on the RBA with the May policy decision - markets widely anticipating no change to policy to remain at 0.25%. This should widely be regarded as a non event. The RBA cut the cash rate by 25bps at its March meeting and by another 25bps to 0.25% at an emergency inter-meeting move on March 19 that also included the deployment of a range of QE measures including policies aimed at lowering key market rates (3yr bonds) and providing low cost term funding for banks. The RBA has also moved to provide large liquidity injections to stabilise increasingly dislocated financial markets. With the RBA continuing to rule out negative rates, the cash rate is set to remain at its current level for a very long time. In the April decision, the RBA noted that: "If (market) conditions continue to improve, though, it is likely that smaller and less frequent purchases of government bonds will be required”. Separately today, the Australian Bureau of Statistics is due to release the second edition of its weekly payrolls and wages data, which covers the period up to April 18th. The first edition showed that payrolls had already declined 6% in the two weeks up to April 4th, and expectations remain for the pace of job losses to have accelerated further since then. AUD is likely to be indifferent to the result though, given the policy response has already been delivered pre-emptively. Tonight’s data will shift to Europe (March PPI - expectations for a fall) whilst in the U.S. the March trade balance and April ISM non manufacturing numbers will be released (once again, expectations for both to fall to record lows). For the AUD, opens this morning at 0.6425 after a solid bounce from yesterdays lows. Correlation between AUD & U.S. equities remains strong, and a beacon for future price movements. Resistance is seen in the 0.6420/25 area, if cleared 0.6445/50 and 0.6475 is targeted. Support at 0.6400/10 and then 0.6375.