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Global Market Update
The View from Australia

Craig Killaby June 23, 2020



> AU June Flash Manufacturing & Services PMI : 49.8 & 53.2 v. 44.0 & 26.9 prev.

> JP June Flash Manufacturing PMI : 37.8 v. 39.5 exp.

> EU June French Flash Manufacturing & Services PMI : 52.1 & 52.3 v. 44.9 & 46.1 exp.

> EU June German Flash Manufacturing & Services PMI : 44.6 & 45.8 v. 41.5 & 41.7 exp.

> EU June Flash Manufacturing & Services PMI : 46.9 & 47.3 v.  43.8 & 40.5 exp.

> UK June Flash Manufacturing & Services PMI : 50.1 & 47.0 v. 45.2 & 39.1 exp.

> US June Flash Manufacturing & Services PMI : 49.6 & 46.7 v. 50.0 & 46.9 exp.

> US May New Home Sales : 676K v. 630K exp.

> US June Richmond Manufacturing Index : 0 v. -3 exp.


Overnight Headlines (BBG)


> Nearly every recent poll shows President Donald Trump headed to defeat in November, with the nation reeling from the Covid-19 pandemic, a recession that’s thrown 20 million people out of work, and waves of protests against police violence

> Federal Reserve Bank of St. Louis President James Bullard said yield curve control may not be necessary with current market pricing

> Disjointed communication within the White House staff yet again as Navarro speaks out of turn before Trump refutes his comments


What you need to know


Very interesting day in Asia yesterday, with a sharp move lower in risk assets in the morning following comments from Trump’s Trade Assistant Navarro on the state of the US/China trade deal sending jitters throughout financial markets. In a conversation with Fox News, Navarro stated that the trade deal signed earlier this year is over, citing the issue is that China already knew about the spread of the coronavirus before signing the deal. Immediate reaction was risk aversion, with the AUD dropping as much as 1.1% as CNH collapsed. The move was very short lived, with Navarro walking back the comments minutes later stating that he was taken wildly out of context and it is the trust that is done not the deal. Trump also tweeted that the deal is still very live shortly thereafter, easing investor’s nerves. The moves were immediately reversed with US futures jumping and the AUD rallying to finish the day up against the Buck.


In Europe, the story was the PMIs coming out from across the region, all of which showed that the European economy is right on track for a growth rebound. This all while Germany reported over 500 new cases of COVID-19, showing that virus risks are still very real. The UK looks ready to open up even more of their economy on the 4th July, this move despite the health concerns for the country as yet again the economic impact of the shutdowns are outweighing the virus health risks. Reaction in FX markets was a rise in the EURUSD while GBPUSD also remains elevated, with the latter still benefiting from hawkish comments from the BOE Gov. earlier in the week.


During the US session, the news was centred around the steady move higher in US equity markets as the S&P 500 closed the day up 0.4% and yet again showing that in this environment stocks seemingly only go up. The Trump administration looks ready to prepare another round of stimulus as early as July, with White House advisor Kudlow stating that both stimulus cheques and tax breaks are on the table. The Dollar remains offered, with the DXY down another 0.4% as the haven glow starts to dim for the Greenback. Mixed bag on the commodities front, with Gold the story as demand for the asset remains elevated no matter the risk appetite, a signal of investors uneasiness with the actions of the world’s Central Banks. WTI crude pared back some of its early gains this week, down over 1% as the threat of potential reimplementing of stay at home orders weighed down the price.


The Day Ahead




> NZ RBNZ Official Cash Rate Decision & Statement : 0.25% exp.

> EU June German IFO Business Climate : 85.0 exp.

> US EIA Crude Oil Inventories : 1.2M prev.


At the half way point of the trading week, there seems to be no stopping the AUD and risk in general as it remains in favour in the current global economic landscape. The risks locally will be around the headlines, as we saw how jittery markets are to negative news yesterday anything that shows a concerning level of cases in Victoria will be a major blemish to the AUD’s glow.


The highlight will be around mid-day, with the RBNZ’s interest rate decision on the cards. Not expecting policy change, however the commentary on negative rates and QE will be the key. Risks to the downside for the NZD, while the AUD likely to remain supportive. Elsewhere the data is light, equities leading the way with local markets tipped for a green open.


Range for the day : 0.6870 – 0.6985


AUD/USD Technicals


After being unable to crack resistance at 0.6977, the pair still remains bullish above the 0.6900 handle and looking bullish. The amount of liquidity in markets has made higher lows the new normal, with a weekly close above 0.6900 likely to signal another test of 0.7000 at month end.