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Global Market Update
The View from Australia

Richard Breen July 19, 2020

Data/Speakers

 

> NZ June Business NZ Manufacturing Index : 56.3 v 39.7 prev.

> EU June Final CPI & Final Core CPI : 0.3% v 0.3% & 0.8% v 0.8% exp.

> CA May Wholesale Sales : 5.7% v 7.4% exp.

> US June Building Permits : 1.24M v 1.30M exp.

> US June Housing Starts : 1.19M 1.17M exp.

> US July Prelim UoM Consumer Sentiment : 73.2 v 79.0 exp.

> G20 Meetings – Weekend

 

 

Overnight Headlines (BBG)

> EU SUMMIT: NO AGREEMENT ON SCALE OF GRANTS IN EU RECOVERY FUND; 350 BLN EUROS RED LINE  FOR FURGALS, 400 BLN EUROS FOR MANY OTHERS – SOURCE

> *LAGARDE: AN AMBITIOUS EU RECOVERY DEAL BETTER THAN A FAST DEAL

> *EU LEADERS NO CLOSER TO RECOVERY FUND DEAL: OFFICIAL

 

 

What you need to know

 

The EU summit the focus for markets ending last week and early headlines today reveal that leaders are no close to a deal on the EU recovery fund, which would effectively put a Euro-bond in play. EU leaders extended their meetings though to Sunday (EU time) and as I write, have taken a 45 minute break. It is a somewhat positive sign that they have not given up so far, but a deal was always going to be a struggle a rich history of disagreement across the zone. Early Sydney FX markets little changed with the first EURUSD print at 1.1405, down slightly from Friday’s NY close.

 

Not a great deal of important price action on Friday night in NH markets with ranges still holding – S&P500 at the top of its range and still yet to break out; US 10 year yields stuck around the 62bps mark; VIX sliding back to one month lows in similar fashion to the USD (DXY & BBDXY). To me all this signals that markets are not ready to break out with the Virus concerningly flaring up across the Globe and so much optimism priced in to risk right now. Cross asset correlation is at extreme highs and it is all really one trade right now –  Short Dollars/Long equities. Volatility starting to look cheap given so much event, geopolitical and pandemic risk on the horizon and still under-priced in my view.

 

Of particular interest for me last week was chatter that the FED is going to come up with a formal statement to let inflation run up to 2.5% before any tightening of policy. This has been mooted before but something formal would signal a big change in policy and would have negative implications for the Buck.

 

The Day Ahead

 

Data

 

> JP BoJ Minutes

> JP June Trade Balance -¥330bio exp

> EU German PPI 0.2% exp

> EU May Current Account €15.2bio exp

 

Another day of third tier data in Asia so sentiment is going to be EU headline driven – just out as I write: *DENMARK READY TO ACCEPT EU400B OF GRANTS IN EU PLAN: OFFICIALS. EURUSD back up to NY highs and AUDUSD trading up to 0.7000 the figure. A deal should put a bit of spark in to risk assets but I am not sure if it will be enough to push markets out of their ranges just yet. SPX futures only up smalls post headlines. Stick to trading the ranges.

 

Range for the day : 0.6980 – 0.7060

 

AUD/USD Technicals

 

Techs yet again unchanged for the Aussie as it continues to consolidate around the 0.7000 mark. A break above 0.7063 is clearly needed for the next leg higher. Momentum indicators have pulled back to alleviate some of the overbought conditions seen as the end of last month. Chatter still is exporter demand between 0.6890/0.6920 and as mentioned above, I cant see the need to step away from trading the range unless 0.7063 gives way. Longer term I can’t see much below 0.6650/0.6700 on the downside and if that kind of move was seen, would be going max limit long.

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