Overnight Market Headlines
- US job openings (JOLTS survey) rebounded strongly in March, by 346k to 7.49mn, above expectations and confirming ongoing strong demand for labour well in excess of the number of unemployed in March (6.21mn).
- The EU Commission’s Spring forecast update lowered growth (to 1.2% in 2019 and 1.5% in 2020 for Eurozone, 1.4% in 2019 and 1.7% in 2020 for EU-27). This is generally an amalgam of previously released projections and so of little real impact, but the assessment of national debt and budgets does set the debating profile within the EU. As such, the projected deterioration in Italy’s deficit to 3.5% of GDP, breaching EU limits, is of interest.
- UK cross party Brexit talks are still unable to find any consensus to end the current impasse. Although UK is confirming that it will hold EU elections on 13rd May, the PM’s office now hopes to find support for a Withdrawal Agreement in advance of the EU Parliament convening in early July. This would avoid protest-votes and disruptive UK MP’s taking their seats, and also signal the timing for May stepping down as PM.
- The GDT dairy auction resulted in prices overall little changed (+0.4%), with WMP down 0.5%, SMP up 2.8%, and butter unchanged.
- The US dollar index is up 0.1% on the day, closing at 97.56
- EUR fell from 1.1215 to 1.1165.
- USD/JPY fell from 110.80 to 110.20, the safe-haven yen outperforming.
- AUD retraced yesterday’s RBA-related rally, slipping from 0.7048 to 0.7000.
- Similarly, NZD fell from 0.6630 to 0.6588.
- AUDNZD retraced part of yesterday’s rally, slipping from 1.0643 to 1.0614 as risk sentiment soured.
- AUDEUR rebounded from 0.6240 towards 0.6290 – range trading for the majority of the session afterwards.
AUD rallied yesterday after the RBA defied pressure for an immediate cut in interest rates, though it left the door wide open for an easing should the jobs market not stay strong.
AUD popped up almost half a cent to 0.7048 on the decision, giving it a gain for the day of 0.7%. The Reserve Bank of Australia (RBA) ended its monthly policy meeting by keeping rates unchanged at 1.5%, where they have been since August 2016.
"The Board...recognised that there was still spare capacity in the economy and that a further improvement in the labour market was likely to be needed for inflation to be consistent with the target," RBA Governor Philip Lowe said in a statement.
The case for more stimulus was underlined by data showing retail sales were surprisingly soft in the March quarter, falling 0.1% when adjusted for inflation. That posed a downside risk to economic growth in the quarter and offset another strong reading on international trade. Australia's trade surplus for March beat expectations at A$4.9 billion ($3.43 billion) and set the seal on a record-breaking total of A$14.7 billion for the quarter.
This week's seemingly dire shift in U.S.-China trade negotiations could be the catalyst for a major financial asset deflation, one that would eventually force the Fed off the policy fence into rate cuts because ECB and BOJ rates are already negative and their economies are much weaker. S&P had its worst day since the Jan. 3 flash crash and nearing the often pivotal 50-DMA at 2,856. The VIX has surged to its highest since early January.
AUD weathered volatile price action after the RBA decision and on lingering U.S.-Sino trade deal concerns but the inability to make headway below 0.7000 suggests bears could be in for hardship.
Rate cuts are largely priced in to AUD so once they do occur their impact will be limited. The heightened U.S.-China trade fears soured risk sentiment and drove AUD toward pre-RBA levels, but news that China's Vice Premier Liu will attend talks
later this week suggested additional tariffs could possibly be delayed. Should tensions ease, AUD shorts are likely to get squeezed hard, allowing for a return to April's high.
AUD heavy in New York session as US-Sino trade concerns remain, global bond yields sink. Risk-off sentiment gives JPY a bid, AUD/JPY nears 77.10, AUD also sinks.
Sharp drop in equity and copper prices help AUD fall below 10-DMA. Long upper wick on daily candle, falling monthly RSI have techs leaning bearish. Short-term risks are to downside but bears could be surprised. If AUD fails to gain traction below 0.7000 soon the upside risks will grow.
Risk Event Data Today
- No Australian Economic data today
- NZ: The RBNZ Monetary Policy Statement this afternoon could deliver an OCR cut, from 1.75% to 1.50%, but it’s a close call. Markets and analysts are evenly divided on the prospect.
- Tonight - Euro Area: Mar German industrial production is released.
- Tonight - US: Fedspeak involves Brainard at a Fed Listens event.