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Global Market Update
The View from Australia

Craig Killaby May 19, 2020



> NZ Q1 PPI Input/ Output : -0.3% & 0.1% v. 0.3% & 0.5% exp.

> UK April Claimant Count Change & Unemployment Rate : 856.5K & 3.9% v 675.0K & 4.4% exp.

> EU German ZEW Economic Sentiment : 51.0 v. 30.0 exp.

> US April Building Permits : 1.07M v. 1.00M exp.


Overnight Headlines (BBG)


> Powell says Fed is ready to use all weapons in its arsenal to help U.S. economy, though he dodged senators’ efforts to get him to take sides on aid; U.S. Treasury Secretary Steven Mnuchin says he plans to use all $500 billion in lending funds for virus

> Moderna’s vaccine study is being questioned

> Brexit talks sour with U.K. slamming EU’s “unworthy” offer


What you need to know


What a difference a day makes as the AUD posted fresh highs amidst vaccine optimism despite China taking aim at Australia’s key exports. There was a substantial rise in risk appetite as the leading vaccine candidate from Moderna Inc. reported to produce antibodies in all of the candidates. This changed overnight, as key experts in the vaccine community picked apart the vague report from the company as serious questions remain around the validity and efficacy of the vaccine thus far. To close the session in the US, Moderna Inc’s stock price was sold off sharply while the S&P500 erased gains to close the session down 0.5%. Elsewhere, the US Fed Chair continued his two day testimony and reiterated that the Central Bank is willing to do everything in its power to cushion the devastating blow that the COVID-19 outbreak has had on the US economy. Locally, the RBA meeting minutes showed that they will maintain the course in the propping up of the economy as the current policy measures seem to be having their desired effect. The tensions between China and Australia continue to be at a fever pitch, after tariffs were slapped on barley exports there are reports that the country is readying more tariffs on some more of AU’s exports including wine and dairy. In FX, the Dollar is down a touch in DXY terms, while the AUD remains elevated above the 0.6500 handle although a ways off the recent high of 0.6585 posted overnight. Mixed bag on the AUD crosses, with the havens taking the brunt of the selloff as hopes of a vaccine driven economic recovery takes centre stage. The GBP and EUR both down off their highs as talks between the UK/EU on the divorce terms limit the upside potential as risks linger.


The Day Ahead




> AU May MI Leading Index : -0.8% prev.

> UK April CPI & Core CPI : 1.0% & 1.4% exp.

> CA April CPI : -0.6% exp.

> UK BOE Gov. Bailey to speak

> EU May Consumer Confidence : -23 exp.

> US EIA Crude Oil Inventories : -0.7M prev.


With the vaccine study being questions overnight, expecting a very poor open for local equity markets as the ASX looks to give back the majority of the gains seen on the sharp move higher. The data will be light in Asia today, with UK inflation numbers and the BOE Gov the highlights for the session. It is clear that the moves on any sort of health-driven optimism will be fierce as we saw yesterday, however the world does not seem to be out of the woods yet as there are many months until a usable vaccine can be distributed. It would be a good sign if the AUD is able to hold above 0.6500, however the currency looks heavy in early trade.


Range for the day : 0.6480 – 0.6545


AUD/USD Technicals


As the pair remains above the 100DMA, now sitting at 0.6503 whether or not it stays there will be a key barometer for the short term. Resistance seen at the 200DMA, at 0.6660 with a simmer down of tensions between China/AU likely needed to see the pair rally.