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Global Market Update
The View from Australia

Craig Killaby June 29, 2020

Data/Speakers

 

> JP May Retail Sales : -12.3% v. -11.6% exp.

> EU June German Prelim CPI : 0.6% v. 0.3% exp.

> EU June Spanish Flash CPI : -0.3% v. -0.9% exp.

> US May Pending Home Sales : 44.3% v. 18.9% exp.

 

Overnight Headlines (BBG)

 

> Federal Reserve Chair Jerome Powell stressed the importance of keeping the coronavirus contagion contained as the U.S. economy bounces back from its deepest contraction in decades

> The Federal Reserve announced that the Primary Market Corporate Credit Facility opened for business Monday, the last

of its nine pandemic emergency lending programs to become operational

 

What you need to know

 

I wish I had an explanation for yesterday’s price action, however the market continues to be overly optimistic and confident that central banks will buy anything to prop of the economy. It looked to be a risk off session, with the record surge in US virus cases and major states closing back up, futures opened in the red only to pare back losses to finish the session up. There was positive news out of China that a vaccine was approved for military use, however digging into the details the standards for military use in China are very low and really doesn’t mean a whole lot for the larger prospects of a vaccine. However, risk was back on as US futures rallied and saw the AUDUSD follow a similar pattern and touching a high of 0.6891 in the late afternoon.

 

During the European session, German stimulus agreements boosted the EUR although Merkel’s murky response on the ECB’s stimulus measures saw the common currency pare back gains. During the US session, it was, and continues to be all about equity markets (and general risk sentiment) as the Fed released the list of the corporate bond index they are purchasing and it is very surprising to see some of the names on the list. Does the Fed buying Apple bonds really help the overall economy? It all seems very suspect. However, markets reacted as one would expect when they have a drunk whale buying everything it sees without remorse as the S&P500 closed the day up over 1.5% while Florida posted yet another all time virus case record. The Dollar regained its favour as there was some positive data around manufacturing and home sales, while Powell’s testimony was released from the Fed and he reaffirmed the uncertainty and that the Fed will continue to print, I mean support. Commodity markets having a nice start to the week with WTI crude rallying up near 3% despite the demand fears lingering, while Gold was up modestly and Copper 0.9%.

 

The Day Ahead

 

Data

 

> UK June GFK Consumer Confidence : -29 exp.

> JP May Unemployment Rate : 2.8%

> JP May Prelim Industrial Production : -5.6% exp.

> CN June Manufacturing PMI & Non-Manufacturing PMI : 50.4 & 53.3 exp.

> NZ June ANZ Business Confidence : -33.0 prev.

> AU May Private Sector Credit : 0.1% exp.

> AU RBA Dep Gov. Debelle to speak

> EU June H/Line CPI Flash Estimate & Core CPI Flash Estimate : -0.1% & 0.8% exp.

> CA April GDP : -10.5% exp.

> US June Chicago PMI : 42.0 exp.

> US June CB Consumer Confidence : 90.1 exp.

> US Fed Chair Powell to speak

> US FOMC Members Williams & Brainard to speak

 

Looking to be a busy day across the sessions as the month/quarter end flows set us up for a choppy session. It will all kick off with the Chinese PMI figures, and with the recent outbreaks in China the risk is that these have impacted the numbers in June and may see some downside AUD pressure. RBA Dep Gov. Debelle is due to speak around mid-day, and with the level of support coming from CBs around the world their commentary is ever important.

 

The big one will be Powell’s testimony this evening, with the question period the key however expecting this to be Dollar negative as the joint testimony w/ Mnuchin pointing to alluding to more stimulus. Expecting today to be a wide range, however risks pointing to the downside as the situation in Victoria likely to dampen the mood locally as the outbreak may see triple digit cases today as lockdowns loom. Month/Quarter end flows make it for a difficult session to pick, however Dollar demand may see the AUD struggle.

 

Range for the day : 0.6790 – 0.6885

 

AUD/USD Technicals

 

There seems to be some resistance around 0.6900 as the likelihood of lower highs takes over, with a break unlikely today unless it comes from a headline. 0.6841 on the downside leaves the door wide open to a move towards 0.6775, while a break of 0.6900 brings 0.6971 and 0.7063 back into play.