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Global Market Update
The View from Australia

Craig Killaby March 19, 2019



> AU Q4 HPI : -2.4% v. -1.9% exp.

> UK January Average Earnings Index & Unemployment Rate : 3.4% & 3.9% v. 3.2% & 4.0% exp.

> EU February German ZEW Economic Sentiment : -3.6 v. -11.0

> US January Factory Orders : 0.1% v.  0.3% exp.


Overnight Headlines (BBG)


>  Some U.S. negotiators are concerned that China is pushing back against American demands in trade talks as progress slows, according to people familiar

>  The European Union is likely to tell Theresa May that she must decide by mid-April whether to extend Brexit until 2020 or risk leaving in three months without a deal, a senior EU official said


What you need to know


It was a relatively tight range for the AUD yesterday, with the RBA proving to be no more dovish than market expectations prior to the release of the soft Q4 GDP read. The market seemed ready for a dovish tone in the minutes, however they were surprised when there was no major changes thus inciting a very small rally in the AUDUSD pair. It was a quiet remainder of the session in Asia, drifting lower to sit just below the 0.7100 handle in early trade today. In the UK, there was no real changes to the Brexit saga after the House speaker struck down Parliament’s vote on the exit deal yesterday. Next up will be PM May heading to Brussels to negotiate the terms of their extension request as the deadline looms. It was positive news on the data front in the UK, buoying the GBP as the wage number ticked up in January while the Unemployment rate also dropped in the month. Cable was up as much as 0.4%, settling up 0.15% against the Greenback. The US session was quiet, with a miss in factory orders the only data point while financial markets ready for the FOMC meeting tomorrow morning (5am AEDT). The driver of the session was around the US/China trade talks, as they have been out of the headlines of late they were back as reports broke that there are worries from the US side of the talks that the Chinese may not concede to what the had initially agreed on when the talks were heading in the right direction. The talks will move to Beijing next week as the two sides try to get a deal done. The DXY was down on the day, with the Dollar able to gain the most against the AUD across the sessions. AUD crosses also looking a touch sicker this morning, with the stronger EUR and GBP having an effect. UST yields rising, with the shorter end treasuries leading the gains up 1.6bp. S&P500 was unchanged on the session. Iron Ore a touch softer on the open today, down over 1% with not much else to report on the commodities side.


The Day Ahead




> NZ Q4 Current Account : -3.26B v. -3.55B exp.

> AU February MI Leading Index : 0.0% prev.

> AU RBA Ast. Gov Bullock to speak

> UK February CPI : 1.8% exp.

> US FOMC Statement & Federal Funds Rate : <2.50% exp. (no change)


We can expect a quiet day across markets, with the only real catalyst in Asia coming from the speech from the RBA Ast. Gov. Don’t expect many comments from Bullock, as any change from the RBA’s tone will likely come from the Gov. himself. The big one for markets will come tomorrow morning, as the FOMC is expected to keep interest rates unchanged at their March meeting. Although no change is likely a foregone conclusion, all eyes will be on any dovish tones in the statements and major shifts in the dot plot. The market is heavily leaning on the dovish side, so a disappointment here is a significant risk. Investors will be unlikely to take major positions leading into the release, so expecting sideways trading today. Wide range takes into account tomorrow’s meeting from the Fed.


Range for the day : 0.7060 – 0.7125


AUD/USD Technicals


The inability to hold above 0.7100 does not bode well for a sustained rally, however a change in sentiment on US/China trade and a dovish Fed could be the spark that the bulls need to go on a run. With volatility collapsing, signs are pointing towards a bullish move. A push above 0.7100 will need to break the 55/100 SMAs at 0.7131/61 while the Feb high of 0.7207 and the 200DMA at 0.7219 are the likely absolute best case levels. Nothing really changed on the downside, with 0.7060 holding for now and a break of 0.7003 needed to point to further downside in the pair.


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