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Global Market Update
The View from Australia

Craig Killaby May 28, 2020

Data/Speakers

 

> NZ May ANZ Business Confidence : -41.8 v. -45.6 prev.

> AU Q1 Private Capital Expenditure : -1.6% v. -2.6% exp.

> EU May German Prelim CPI : -0.1% v. 0.1% exp.

> US Q1 Prelim GDP : -5.0% v. -4.8% exp.

> US April Core Durable Goods Orders & Durable Goods Orders : -7.4% & -17.2% v. -14.8% & -19.0% exp.

> US Weekly Unemployment Claims : 2.123mio v. 2.1mio exp.

> US April Pending Home Sales : -21.8% v. -15.0% exp.

> US EIA Crude Oil Inventories : 7.9mio v. -2.5mio exp.

 

Overnight Headlines (BBG)

 

> China has made a “huge mistake” in passing a new national security law curbing freedoms in Hong Kong and will be held

accountable by the U.S., President Donald Trump’s top economic adviser said

> The U.K. may have already given up on the prospect of getting a trade agreement with the European Union, one of the bloc’s

most senior officials said, adding to signs of increasing friction in the negotiations

 

What you need to know

 

Coming into the end of the week and month, the AUD has been able to remain relatively elevated above 0.6600 although failing yet again to hold on to gains above the 200DMA. Yesterday we had RBA Gov. Lowe speaking in a virtual testimony, where he outlined that there are still plenty of risks to the local economy although acknowledging that it may be in a better position than originally thought with the success on the virus containment. The AUD was muted following the speech, as markets awaited the private capex figures to print shortly after. There was a less than expected fall in the March quarter in business capital investment, however the forecasts painted a gloomy picture of what is to come as investment is likely to be down sharply in 2020-21 as businesses recover from the COVID-19 crisis. The AUD high was 0.6635 in the aftermath of the print, and trickled lower throughout the session posting an intraday low 0.6588 in the afternoon. Local equity markets continue to perform well, as the ASX closed the session up 1.3% as US futures marched higher.

 

As the European session opened up, news hit the wires that China has passed the controversial security bill as unrest in Hong Kong is likely to ramp up. The risk continues to point to the downside with the US/China relations souring, with the US likely to react quickly to China’s move in HK as President Trump scheduled a press conference for Friday in the US to discuss China. In Europe, the EUR held on to its gains against the Buck as the announcement of a 2.4trillion EUR recovery plan boosted risk in the region. The GBP surged against the Dollar, as PM Johnson gave an outline for the reopening of the UK economy. The data in the US was highlighted by more weekly job figures, and while the initial claims came in higher than market estimates there was a near 4mio drop in continuing claims for the first time since the pandemic began. The numbers sparked optimism for the US labour market, showing that Americans may be slowly heading back to work. US equity markets ended the day on a bad note, with the China press conference news igniting some risk aversion to close. The S&P500 closed down 0.2%, although still above the key 3000 level. It was a strong day on the commodities front, with WTI crude the biggest story as it rallied near 5% as data showed an increase in gasoline usage subdued demand fears. Metals all up on the day, with Iron Ore , Copper and Gold all in the black.

 

The Day Ahead

 

Data

 

> JP May Tokyo Core CPI : -0.2% exp.

> JP April Prelim Industrial Production : -5.5% exp.

> AU April Private Sector Credit : 0.6% exp.

> EU April German Retail Sales : -12.0% exp.

> EU April French Consumer Spending : -14.5% exp.

> CA March GDP : -9.0% exp.

> US April Core PCE Price Index : -0.3% exp.

> US April Personal Spending : -12.6% exp.

> US April Goods Trade Balance : -64.1B exp.

> US April Prelim Wholesale Inventories : -0.5% exp.

> US May Chicago PMI : 40.1 exp.

> US Fed Chair Powell to speak

> CN May Manufacturing & Non-Manufacturing PMI : 50.8 % 53.2 prev.

 

With end of month flows today and the ramp up of tensions with the US/China there is a chance of a move lower in the AUD, and it could happen very swiftly. Data locally is light, with a very live headline risks today as the passage of the HK security bill late yesterday will likely not be met well in HK. Equity markets have been a great barometer of risk appetite during the session, however EOM flows may cause for choppy trade. Fair bit of data in the US overnight, with Trump’s press conference on China likely to overpower any positive/negative data releases. Also on the docket it US Fed Chair Powell, due to speak at 1am AEST this evening while China’s PMI figures are coming out on the weekend.

 

Range for the day : 0.6560 – 0.6640

 

AUD/USD Technicals

 

Rallies have fizzled again around the 200DMA, now sitting at 0.6657. Would be surprised to see the AUD break through today with the geopolitical backdrop painting a risk-off tone. Expecting the pair to trickle towards the 0.6570 level, with the Dollar demand EOM a factor. The 100DMA sits at 0.6481, so big moves should run into some support there.