OVERNIGHT DATA AND HEADLINES
• Oil prices rose and global equity markets rallied after China said it has agreed with the United States to cancel tariffs in phases, a key consideration in reaching an initial deal to end a trade war that has crimped economic growth. Comments from a Chinese commerce ministry spokesman about the terms of a potential trade deal prompted investors to dump perceived safe havens. No timetable was indicated, but a "phase one" deal is widely expected to include a U.S. pledge to scrap tariffs scheduled for Dec. 15 on about $156 billion worth of Chinese imports, including cellphones, laptop computers and toys.
• Wall Street hit fresh record highs on signs of progress in U.S.-China trade relations. Dow Jones +200 points (0.73%) 27,693, S&P 500 +10 points (0.33%) 3,086 and Nasdaq +30 points (0.37%) 8,441.
• German industrial orders fell by 0.6% in September, slightly worse than the expected contraction of 0.4%.
• The Bank of England left monetary policy unchanged at 0.75% though unexpectedly there were 2 dissenters calling for a 25bp cut. The statement did note that policy easing could be needed if Brexit risks or global risks worsened while growth forecasts for 2020 and 2021 were downgraded.
• US weekly jobless claims were mixed with initial claims modestly better than expected at 211k though continuing claims were modestly worse than expected at 1.689 mio.
• The U.S. DXY rose 0.19% to 98.20.
• EUR was down 0.16% to $1.1047.
• GBP remained heavy and ultimately fell below 1.2800 from 1.2870 as BOE Governor Carney struck a dovish tone at his press conference
• JPY weakened 0.29% at 109.31
• AUD eased slightly as a possible delay in the signing of a Sino-U.S. tariff deal sapped investor enthusiasm. AUD slipped from 0.6910 highs to 0.6895.
• NZD was down 0.3% at 0.6349, on track for its fourth straight session of losses.
• AUDNZD reached 1.0865 highs before falling back towards 1.0830
• AUDEUR saw fresh new highs at 0.6259 but fell in smalls down to 0.6240.
• U.S. Treasury yields rose to eight-week highs as renewed optimism that the U.S. and China will reach a deal to de-escalate their trade war boosted risk appetite and reduced demand for safe-haven bonds.
• Benchmark 10-year notes fell 23/32 in price to yield 1.890%, the highest since Sept. 16, and up from 1.821% late Wednesday.
• Gold slid more than 1% to its lowest level in over a month. Spot gold was down 1.4% at $1,469.03 per ounce having slipped to $1,467.71.
• Benchmark Dalian iron ore futures declined on Thursday, tracking weak physical prices on rising inventories at China's ports, though losses were limited due to restocking demand from some steel mills. Singapore Exchange, the front-month December iron ore contract was down 1.1% at $80.15 a tonne. Benchmark spot 62% iron ore for delivery to China was steady at $83.50 a tonne, the weakest since Jan. 29.
• Copper rose after China said it had agreed with the United States to cancel tariffs imposed during a protracted trade war in phases however no timeline was given. LME 3 month copper was up 1.2% to $5,975 a tonne.
• Global benchmark for crude climbed above $62 a barrel. Brent crude settled up 55 cents at $62.29 and West Texas Intermediate added 80 cents to settle at $57.15 a barrel.
• Australian Economic data today - RBA Statement on Monetary Policy (growth and inflation forecasts updated).
• Australian September housing finance (expectations 1.1% from 0.7% previous). Clear lift in finance activity since mid year.
• China – Q3 account balance and October trade balance.
• US – September wholesale inventories & November University of Michigan sentiment
AUD remained largely range bound overnight failing to capitalise on any further advancements through 0.6915 after gaining from 0.6860 lows.
This week’s RBA monetary policy decision came and went as expected so we look ahead to today’s Statement on Monetary Policy (SoMP).
The Bank faces a tricky communication challenge given we envisage the staff will again modestly downgrade their “underlying” inflation forecasts in today’s report. Macquarie Strategy also expect the Bank to lower its GDP growth forecasts. Near-term growth forecasts must be lowered.
The ‘mini virtuous cycle’ that began on Oct. 11 had another good session overnight, propelled by reports that China and the US reached an agreement to roll back existing tariffs on each other’s goods in phases. A few caveats are in order. First, it is unclear whether the agreement for a tariff roll-back will be “in principle” (i.e., without a specific timetable, and attached to the ‘phase 2’ and ‘phase 3’ deals that have yet to be struck), or whether ‘phase 1’ itself will include the roll-back. (There’s been no hard confirmation from the US side that it has agreed to a roll-back specifically in ‘phase 1’.)
AUD rises on upbeat China trade view, Australian trade data bolsters AUD as US-China inch toward deal. Risk higher on optimistic China trade view.
AUD eyes trend high 0.6930 downward trend line resistance then the 200 day moving average at 0.6948.
Close below 10DMA at 0.6881 eyes 100DMA (0.6851) & daily cloud top (0.6827)