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Global Market Update
The View from Australia

Craig Killaby May 21, 2020



> AU May Flash Manufacturing & Services PMI : 42.8 & 25.5 v. 44.1 & 19.5 prev.

> JP May Flash Manufacturing PMI : 38.4 v. 41.9 prev.

> EU May German Flash Manufacturing & Services PMI : 36.8 & 31.4 v. 39.3 & 26.3 exp.

> UK May Flash Manufacturing & Services PMI : 40.6 & 27.8 v. 35.1 & 24.1 exp.

> US May Philly Fed Manufacturing Index : -43.1 v. -40.0 exp.

> US Unemployment Claims : 2.438m v. 2.4mio exp.

> US May Flash Manufacturing & Services PMI : 39.8 & 36.9 v. 37.5 & 32.6 exp.


Overnight Headlines (BBG)


> Clarida Says Economy May Need More Fiscal, Monetary Support

> Trump Warns China of U.S. Response to Hong Kong Crackdown

> RBA has now stayed out of sovereign bond market for two weeks, May 6 the last purchases


What you need to know


Risk assets seem to be teetering on a knife’s edge as we open up Friday’s trading session, with a continued ramp up of tensions between the US and China weighing heavy as China’s congress is due to meet today. The AUD ran into a wall around the 0.6600 figure yesterday, unable to break through as investors cut their long AUD positions with the lingering tensions with China from both AU/US igniting the move. It was PMI day across the world yesterday, with the AU numbers showing slightly better figures on the services side, however both the manufacturing & services sector still well below expansionary levels as the COVID-19 fallout takes its economic toll.


In Europe, the EU seems to be recovering after posting dismal PMI figures last month on the reopening of the EU economies, albeit cautiously, has seen the numbers recover slightly although still well below expansionary levels. During the US session, the focus of markets are the tensions with China as the US congress looks to be preparing to pass a bill that would de-list Chinese companies on the US exchanges. Also, as China moved to take over control of Hong Kong yesterday with a very controversial bill proposed allowing Beijing to overrule legal judgments found in Hong Kong. The US and President Trump warned the Chinese about passing such measures, vowing a retaliation if the new security laws were passed. The HKD dropped on the news, with further risks today as the Chinese congress convenes today.


The data in the US continues to be very alarming on the unemployment front, with yet another 2.4mio Americans applying for unemployment benefits last week as the economic toll on the services sector has been devastating. In FX, the Dollar opens up 0.25% higher in DXY terms as its value as a haven play still remains despite the economic turmoil. The AUD and NZD were two of the worst performers against the Buck as the moves raised questions about how solid the footing is of the recent risk rally. Nearly all the AUD crosses are looking much sicker this morning, with AUDGBP down 0.4% on the GBP’s outperformance on better than expected PMI numbers. While AUDCHF was able to eek out gains up a touch over 0.10%.


UST yields are lower cross the curve, as risk takes a backseat to close the week. Equity markets down both locally and abroad, with the ASX down 0.4% yesterday as the S&P500 closed off 0.8%. In commodities, Iron Ore has been the story with demand soaring through the roof in anticipation of the Chinese stimulus measures to be announced today. A possible driver of the selloff in the AUD was the announcement yesterday of China’s plan to amend the inspection rules from June 1st. Although the changes are not major, they will add steps for Iron Ore inspections going into China as the tensions between AU/China continue to linger. Oil remains steady up over 1% yesterday, while Gold the biggest loser down 1.2%.


The Day Ahead




> NZ Q1 Retail Sales : -1.5% exp.

> CN China’s National People’s Congress to meet

> JP BOJ Monetary Policy Decision : -0.10% exp (no change)

> UK April Retail Sales : -15.8% exp.

> EU ECB Monetary Policy Meeting Minutes

> CA March Core Retail Sales & Retail Sales : -4.8% & -10.3% exp.


Still plenty of risk out there to end the week, with NZ’s retail sales numbers kicking it off this morning and expected to be poor. The main event will be any announcements around Chinese stimulus to come from the Chinese congress meeting today, as headline risks remain key.


Overnight in Europe, markets will be digesting the ECB’s recent meeting minutes, while UK retail sales look to contract in the month of April much like the rest of the world. Expecting cautious trade today in APAC with the China congress news driving price action. Announcement of a significant stimulus plan including lots of infrastructure spend would be a good thing for AU’s exports and may provide support to end the week.


Range for the day : 0.6510 – 0.6595


AUD/USD Technicals


The pair seems to have found its new range between the 100DMA at 0.6495 and the 200DMA that now sits at 0.6661. A clear break of the recent high of 0.6616 would signal a potential test of the 200DMA, although lingering China tensions likely weigh. If the pair breaks the 100DMA, a bearish move may be back on the cards.