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Global Market Update
The View from Australia

Craig Killaby May 17, 2020



> CN April Fixed Asset Investment & Industrial Production : -10.3% & 3.9% v. -9.8% & 1.5% exp.

> CN April Retail Sales & Unemployment Rate : -7.5% & 6.0% v. -5.9% & 5.8% exp.

> EU Q1 German Prelim GDP : -2.2% v. -2.3% exp.

> US April Core Retail Sales & Retail Sales : -17.2% & -16.4% v. -8.6% & -12.0% exp.

> US May Empire State Manufacturing Index : -48.5 v. -65.0 exp.

> US April Industrial Production : -11.2% v. -11.3% exp.

> US April Prelim UoM Consumer Sentiment : 73.7 v. 68.0 exp.


Weekend Headlines (BBG)


> U.S. economy adds to grim records, signalling multi-year recovery; millions await jobless benefits; New York governor expects a “controlled” rise of cases

> Fed slows pace of Treasury buying again to $6 billion a day next week

> Brexit head for stalemate with little progress toward a deal


What you need to know


Yet another interesting end to the week in financial markets, with the Chinese data dump Friday the main event in Asia. The data raised some eyebrows and created more questions than answers into what the economic recovery is looking like in China, showing that the speed is much more gradual than initially hoped. With China being the first in, first out of the pandemic the insights showed that retail spending and asset investment continue to lag despite the slow reopening, and in all likelihood similar sort of data is to come across the world.


In Europe, the negotiations for the UK/EU divorce have hit another snag as the COVID-19 pandemic has created another hurdle in an already very difficult situation. The GBP was the biggest loser of the session, this after comments from the Bank of England’s chief economist eluding that the central bank may be looking at unconventional policy measures with negative rates being included in that bucket. GBPUSD is down as much as 1.3% from Friday morning, and looking very heavy in early trade today.


During the US session, the tensions continue to ramp up between the US/China as the US’ insistence into an investigation into the outbreak of the virus has brought trade relations back to the forefront. The data in the US continues to be very negative, with the April retail sales numbers were eye opening as the US economy came to a complete standstill in the month. Numbers from the industrial sector also posted very negative, with the production coming in a touch better than market estimates of an 11% contraction. Despite the very poor numbers out of the US, the Dollar firmed as the haven demand took over. The DXY is up 0.15% from Friday’s open. The AUD and NZD are looking like they are on weak footing, with the AUDNZD moving well above 1.0800 as the negative rate story from NZ seeing the AUD outperform. The AUD posted the session low of 0.6402 around the time of the Retail Sales release in the US, and only a touch above as I write this morning. US equity markets finished the day in the black, up 0.4% to close, while the ASX had a strong finish to the week up 1.4%. In commodities Copper was the laggard in the metals space, with Iron ore up near 3% while Gold remains elevated on haven demand. WTI crude continues its rebound as it rose over 6% from Friday’s open and looking to regain its footing.


The Day Ahead




> JP Q1 GDP Price Index & Prelim GDP : 0.7% & -1.1% exp.

> EU German Buba Monthly Report

> CA Bank Holiday


Choppy day expected today, with the light data calendar in Asia we will be keeping an eye out from headlines and the movement on equity markets for the direction on the AUD today. The rhetoric between AU/China has been very negative of late, and with Australia’s insistence into an investigation into the start of COVID-19, China’s response may not be good for AU sentiment. The week will be light on the data, however US Fed Chair Powell is due to speak twice and RBA Gov. Lowe also on the schedule with the FOMC meeting minutes sandwiched in between. With the pair back towards the 0.6400 handle, would not be surprised to see a break lower as the focus on trade relationships take over.


Range for the day : 0.6370 – 0.6430


AUD/USD Technicals


As the 100DMA continues to drift lower, the upside potential for the pair dwindles. The pair looks to have formed a double top, with a potential of a move down towards the 50DMA very possible in the near term. First up today will be the recent low of 0.6402, with breaks lower targeting the mid-0.6300s. Moves higher will need to tackle the 100DMA, with the 0.6570 the key.