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Global Market Update
The View from Australia

Craig Killaby September 15, 2020

Data/Speakers

 

> AU Q2 HPI : -1.8% v. -1.3% exp.

> CN August Fixed Asset Investment : -0.3% v. -0.5% exp.

> CN August Industrial Production : 5.6% v. 5.1% exp.

> CN August Retail Sales : 0.5% v. 0.0% exp.

> CN August Unemployment Rate : 5.6% v. 5.6% exp.

> UK August Claimant Count Change & Avg. Earning Index : 73.7K & -1.0% v. 99.5K & -1.3% exp.

> UK August Unemployment Rate : 4.1% v. 4.1% exp.

> EU September German ZEW Economic Sentiment : 77.4 v. 70.0 exp.

> CA July Manufacturing Sales : 7.0% v. 8.8% exp.

> US September Empire State Manufacturing Index : 17.0 v. 6.2 exp.

> US August Industrial Production : 0.4% v. 1.2% exp.

 

Overnight Headlines (BBG)

 

> The World Trade Organization said that U.S. tariffs on Chinese goods violate international rules, the US also removed the new tariffs on aluminium on Canada as Trump slowly unwinds his hard stance on trade ahead of the election

> The RBA meeting minutes showed nothing that would elude to the central bank cutting their benchmark rate or lowering the target on AGB yields, igniting a rally in the Aussie

 

What you need to know

 

There was some action during the Asian session yesterday, with local investors reacting to nothing new in the RBA minutes while the monthly data dump from China painted an optimistic picture of their economic recovery. There was commentary from local publications on Monday that the RBA minutes may outline some of the potential policy shifts from the RBA, specifically dropping the target on the 3yr yield towards 0.15% or even 0.10% and cutting the benchmark lending rate below the 0.25% level. The minutes showed nothing of the sort, igniting a brief rally in bond yields and dragging the Aussie higher and above the 0.7300 handle. Explicit commentary around the higher AUD’s negative impact on growth was shrugged off as markets look ahead to tomorrow morning’s important FOMC decision.

 

Buoying risk appetite during the session was the positive data from China, with all releases coming at or above market estimates showing that the recovery China is continuing, with the retail sector posting the first gains since the pandemic began. Also helping was news that China is getting closer to an effective vaccine, planning to roll it out to its population prior to yearend. The Dollar struggled on the session, with CNH a big mover and touching the highest levels since May 2019 against the Buck up as much as 0.65% for the day as stops were triggered post-data dump. One way traffic higher for the Aussie, running higher throughout the day and touching an intraday high of 0.7343 during the US session.

 

GBPUSD was supported by better than expected employment data for August, although the Brexit unknowns is still weighing on the Pound and will likely stay that way until there is a resolution to the recent tensions. During the US session, it was announced that the tariffs imposed on Beijing did not follow WTO rules, raising questions and efficacy of the long time trade war between the countries. Local equity markets finished the day down a touch, seeing the ASX 0.08% lower while Japanese stock markets took a hit on the announcement from Sony that there are chip production delays in their PlayStation 5 launch raising eyebrows and sending the stock sharply lower.

 

The S&P500 was able to edge out gains, up 0.5% on some positive manufacturing data ahead of the very important FOMC tomorrow morning. Commodity markets mixed, with WTI crude rallying capitalising on a weaker Buck up 2.75%. Base metals down on the session, although the price of Iron Ore still very elevated with demand strong. Gold down a touch, 0.2%.

 

The Day Ahead

 

Data

 

> AU September MI Leading Index : 0.1% prev.

> UK August CPI & Core CPI : 0.1% & 0.7% exp.

> EU July Trade Balance : 19.3B exp.

> CA August CPI : 0.1% exp.

> US August Core Retail Sales & Retail Sales : 1.0% & 1.1% exp.

> US July Business Inventories : 0.2% exp.

> US EIA Crude Oil Inventories : 2.1M exp.

> US FOMC Economic Projections, Statement & Rate Decision : <0.25% exp. (no change) (4am AEST)

> US FOMC Press Conference (4:30am AEST)

 

Opening up this morning, the Aussie is hovering around the 0.7300 level, and with the Fed meeting on the docket tomorrow morning not anticipating huge moves as investors remain unlikely to take risks ahead of the decision. Although no change in policy is expected, details on their average inflation target shift will be important following their unveiling at Jackson Hole. The Dollar at risk of further weakness in the medium term, while markets need to start looking ahead to what will be a very tumultuous November with the election coming fast.

 

Range for the day : 0.7255 – 0.7345

 

AUD/USD Technicals

 

Closing the session above 0.7300 invites some bulls back in, however the inability to hold around the overnight highs of 0.7343 shows that investors are weary about getting ahead of themselves. With the Fed tomorrow, the pair will need to break through the overnight high to make another run at the YTD high of 0.7414. Support seen at 0.7183 while 0.7076 remains the key on shift in momentum.