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Global Market Update
The View from Australia

Craig Killaby June 30, 2020

Data/Speakers

 

> JP May Unemployment Rate : 2.9% v. 2.8%

> JP May Prelim Industrial Production : -8.4% v. -5.6% exp.

> CN June Manufacturing PMI & Non-Manufacturing PMI : 50.9 & 54.4 v. 50.4 & 53.3 exp.

> NZ June ANZ Business Confidence : -34.4 v. -33.0 prev.

> AU May Private Sector Credit : -0.1% v. 0.1% exp.

> EU June H/Line CPI Flash Estimate & Core CPI Flash Estimate : 0.3% & 0.8% v. -0.1% & 0.8% exp.

> CA April GDP : -11.6% v. -10.5% exp.

> US June Chicago PMI : 36.6 v. 42.0 exp.

> US June CB Consumer Confidence : 98.1 v. 90.1 exp.

 

Overnight Headlines (BBG)

 

> Fed Chair Jerome Powell stressed to Congress Tuesday that getting the coronavirus under control was vital as the U.S.

> EU governments extended a travel ban for U.S. residents, deeming the American response to the coronavirus pandemic

insufficient to allow its citizens to enter the bloc for non- essential reasons

 

What you need to know

 

Another interesting end to what has been a tumultuous time in financial markets, and risk assets were bid up hard into the close seeing most having their best quarter in decades. Yesterday’s data was centred around the Chinese PMI numbers at mid-day, both coming in above market estimates despite the lockdown impact across the region. The AUDUSD reacted well on the print, however it was a choppy session for the remainder of the day. RBA Ast. Gov. Debelle’s speech provided markets little that we didn’t already know, commenting that the combination of fiscal and monetary policy will be key for the economy to continue its rebound. The emphasis that central bankers have placed on the importance of fiscal policy support can not be understated, whether or not policymakers will adhere to the advise is still up for debate as the July 23 Jobkeeper review announcement will be very important for the future economic prospects.

 

In Europe, there was some good news on the Brexit negotiation front, with Barnier (EU Negotiator) stating that a deal between the two sides is still possible. GBPUSD surged on the comments, while the EUR was also supported although unable to hold on to its gains against the Buck. In the US, it was a day of testimony from some key players with UST Sec. Mnuchin testifying alongside US Fed Chair Powell to congress. The testimony was already released prior, so market reaction was muted, although the rhetoric followed the same sort of playbook from around the world where fiscal/monetary policy needing to be used in tandem while noting that there is a great deal of uncertainty as the virus spreads again across the USA. A key voice in the fight against COVID-19, Dr. Fauci, also testified to congress and stated that the US may be in a very grave situation as more deaths are likely due to the surge. This all happening after the EU extended its travel ban with the US, citing poor management of the situation as the reason.

 

Despite all this sobering news, the market reaction was a bout of positive risk appetite to close out the quarter as the positioning saw the Dollar lose favour as havens struggled. The US equity market closed the session up 1.5% and finished the best quarter since 1998, proving that central bank stimulus is having an astounding impact on a virus ravaged economy. The AUDUSD also surged as the lock step relationship with equities held true yet again, back up over 0.6900 as I write. There was a slight risk-off tone to close the APAC session, with news of another lockdown in Victoria’s hot spot regions taking some shine off the AUD. Commodities had a strong day, with Gold bucking the trend and remaining bid up 0.4% despite the risk appetite. Both Iron Ore and Copper up on the day, while WTI crude was elevated up 0.4%.

 

The Day Ahead

 

Data

 

> AU June AIG Manufacturing Index : 41.6 prev.

> AU May Building Approvals : -7.0% exp.

> CN June Caixin Manufacturing PMI : 50.7 exp.

> JP June Consumer Confidence : 28.9 exp.

> EU June Final Manufacturing PMI : 46.9 exp.

> UK June Final Manufacturing PMI : 50.2 exp.

> US June ADP Non-Farm Employment Change : 2.85mio exp.

> US June Final Manufacturing PMI : 49.6 exp.

> US June ISM Manufacturing PMI : 49.5 exp.

> US EIA Crude Oil Inventories : -0.9M exp.

> US FOMC Meeting Minutes

> CA Bank Holiday – Canada Day

 

With the strong lead in from Wall Street and investors sitting down for a new quarter, it should be very interesting to see the price action. The AUD remains high near the 0.6900 handle, with the super withdrawal moves likely to see a bump higher in the Aussie.

 

Caixin PMIs out of China today, however we will be keeping an eye on headlines from Victoria on the state of COVID-19. US private payrolls are due to hit the wires, with the US off on holiday Friday should be a flurry to finish the week. The Fed’s minutes from their June meeting will hit the wires, and as I have mentioned central bank commentary is more important than ever as they are not only policy setters, they are the market.

 

Range for the day : 0.6840 – 0.6930

 

AUD/USD Technicals

 

Although elevated, the pair still has not broken its recent range between 0.6800 and 0.7000, with lighter volumes to finish the week leaving the door open for a move in either direction. A break of 0.6912 leaves 0.6977 on the table before the key 0.7000 level. While there seems to be a fair bit of support around 0.6830/40 so pull backs may settle around there.