OVERNIGHT DATA AND HEADLINES
• Oil prices surged as much as $3 a barrel as gold, JPY and safe-haven bonds all rallied after the U.S. killing of Iran's top military commander in an air strike in Iraq ratcheted up tensions between Washington and Tehran.
• Markets were spooked after the death of Major General Qassem Soleimani, head of the elite Quds Force who was also one of Iran's most influential figures, and by Iranian Supreme Leader Ayatollah Ali Khamenei's vow of revenge. U.S. Secretary of State Mike Pompeo said the strike aimed to disrupt an "imminent attack" that would have endangered Americans in the Middle East. The impact hit almost every asset class.
• The U.S. manufacturing sector contracted in December by the most in more than a decade with order volumes crashing to near an 11-year low and factory employment falling for a fifth straight month. The Institute for Supply Management (ISM) said its index of national factory activity fell to 47.2 last month from 48.1 in November. It was the lowest reading since June 2009.
• Minutes of the Fed's Dec. 10-11 policy meeting, released on Friday, showed policymakers agreed in their final policy meeting of 2019 that interest rates were likely to stay on hold for "a time" as the central bank set its sights on a new articulation of its monetary policy framework. They also showed policymakers were preparing to discuss changes to the way it manages liquidity in financial markets, including a possible standing repurchase facility. They regarded the current rate stance "as likely to remain appropriate for a time" as long as the economy stays on track.
• German unemployment rose more than expected in December. Data from the Federal Labour Office showed the number of people out of work rose by 8,000 to 2.279 million in seasonally adjusted terms. That compared with the Reuters consensus forecast for a rise of 2,000. The rise in unemployment was the highest since May. The jobless rate held steady at 5.0% - slightly above the record low of 4.9% reached earlier this year.
• Wall Street's major indexes fell from record highs after a U.S. air strike and a bigger-than-expected contraction in the U.S. manufacturing sector. Dow Jones fell 233 points (0.81%) to 28,634, S&P 500 lost 23 points (0.71%) to 3,234, Nasdaq fell 71 points (0.79%) to 9,020.
• The U.S. DXY initially benefited from the move into safe-haven assets, but gains were erased after the ISM data. DXY rose to 97.10, back to 96.72 and closed up 0.05% at 96.90.
• CNY was weaker at 6.9753 however managed to regain some strength down to 6.9650.
• EUR initially gained towards 1.1170 (from 1.1123) and settled slightly lower at 1.1164.
• GBP reacted to the stronger USD, falling from 1.3120 towards 1.3050. Closed slightly higher at 1.3083.
• AUD saw whippy price action, falling from 0.6970 down towards 0.6927 lows and then a bounce back towards 0.6965. This morning opens lower at 0.6935.
• NZD followed a similar AUD price, down towards 0.6642 lows, back up to 0.6674 but lower on the open at 0.6653.
• AUDNZD bounced around but remained in its recent 1.0400 / 1.0450 trading range.
• AUDEUR fell from 0.6235 highs down towards 0.6200 lows (0.6203).
• U.S. Treasury yields fell sharply on Friday on safety buying after increased tensions after the U.S. air strike killed Iran Quds Force chief Qassem Soleimani.
• Benchmark 10-year note yields were last at 1.799%, after falling as low as 1.788%, which was the lowest since Dec. 12.
• Yields on German Bunds fell sharply. The 10-year Bund yield fell 7 basis points to a two-week low of -0.299.
• Gold prices surged to a four-month peak, racing past the key $1,550 an ounce level. Spot gold rose 1.3% to $1,548.94 per ounce (rose to $1,553.20 earlier in the session, its highest since Sept. 5).
• Iron ore futures rose for a fifth straight session, with the Chinese index hitting its highest in five months, after data showed Brazil's exports shrank in December.
• Prices for spot cargoes of benchmark iron ore with 62% iron content for delivery to China gained 50 cents to settle at $93.50 a tonne
• Copper and most other industrial metals fell - Benchmark LME copper ended down 1% at $6,129.50 a tonne after touching its lowest since Dec. 11 at $6,088.50.
• Oil prices jumped to the highest level in more than three months after the U.S. killing of a top Iranian military commander in Iraq. Brent crude ended the session up 3.6% or $2.35 at $68.60 a barrel, off the session peak of $69.50, the highest level since the mid-September attack on Saudi oil facilities. WTI crude oil settled up $1.87 (3.1%) at $63.05 a barrel. Session high was $64.09 (highest since April 2019).
EVENT RISK TODAY
• Australian Economic data today - Dec AiG PMI (last 48.1). Volatile (-3.5pts Nov) around soft trend (housing downturn).
• Japan - Dec Nikkei manufacturing PMI (last 48.8). Holding just below 50.
• China – Dec Caixin China PMI services (last 53.5). NBS and Markit both point to modest growth.
• Eur - Dec Markit services PMI (last 52.4). Still in expansion but has softened of late. Jan Sentix investor confidence (last 0.7). Likely to lift on improved US/China trade relations. Nov PPI %yr (last –1.9%).
• UK - Dec Markit services PMI (last 49.0). Has joined manufacturing to be in contractionary zone.
• US - Dec Markit services PMI (last 52.2). Domestic demand continues to support services.
AUD starts this week on circumspect note after the sharp 0.85% drop over the Friday night session saw it trade down towards 0.6927 lows, evaporating all 2019 year end gains from the 0.7031 highs on the escalating Middle East tensions. The US-Iran threats & counter-threats will continue to weigh on risk sentiment as the week progresses adding yet another layer and reason to remain an AUD seller.
The 2020 Australian Economic data landscape begins to pick up this week with some tier 1 releases in the way of Nov trade balance (Thur) and Retail sales (Fri).
In the U.S. we have tier 1 job releases with the ADP employment (Wed) and Non farm payrolls on Friday night.
Today's price action suggests AUD could be confined to the 0.6920/0.6965 range until further direction is received. Watching for any further continuation in risk sentiment deterioration and heightened geo-political tensions.
AUD cowed down by M.East tensions but holds key support. Downside likely limited as dismal US ISM data points to slowing US economy
After breaking 0.6967 10 day moving average support, next immediate support now at 0.6925 followed by 0.6917 and 0.6892/0.6897.
Resistance @ 0.6970, 0.6995-0.7000. RSI’s continue to trend lower.