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Global Market Update
The View from Australia

by Craig Killaby | May 11, 2021

Data/Speakers

 

> JP March Household Spending : 6.2% v. 1.4% exp.

> CN April CPI & PPI : 0.9% & 6.8% v. 1.0% & 6.5% exp.

> EU March Italian Industrial Production : -0.1% v. 0.5% exp.

> EU May German ZEW Economic Sentiment : 84.0 v. 72.0 exp.

 

Overnight Headlines (BBG)

> The AU government released their second COVID19 budget, which included a wave of spending measures designed to create jobs while noting that international borders are expected to remain closed until mid-2022

What you need to know

Sideways trading for the majority of yesterday’s session, with the worries about rising inflation back to the forefront with risk appetite waning throughout the session. Chinese inflation numbers did little to move the needle, however rising producer prices made investors more wary that the continued export of higher prices from China may add fuel to the already raging inflation fire. The AUDUSD traded in a tight 30pip range throughout the day, touching a high of 0.7856 and a low of 0.7821 overnight. The focus remains well and truly on the inflation narrative, while the AU government released their budget that showed higher than expected spending as they attempt to buoy the economy from the worldwide economic downturn. UST yields continue to edge higher as investors start to look ahead to the impact that higher inflation may have on the Federal Reserve’s interest rate path. While Fedspeak overnight did little to provide insight, as price distortions still remain the key as the large fiscal support and supply bottlenecks are skewing prices.

 

The Dollar is down 0.10% on the session in DXY terms, with move FX moves muted ahead of this evening’s US CPI report. Equity markets both locally and abroad had a tough session, with the S&P500 closing down over 1% while the ASX was dragged lower as technology shares struggled to stay afloat in the face of rising inflation expectations. Commodity markets surged yet again, with Iron Ore the major story as it sits above US$220/tonne as I write this morning, a staggering level and a boon for the AU government. Copper up 2% on the day, while WTI crude also joined the party up 0.7% as gas shortages were seen in some parts of the US.

 

The Day Ahead

 

Data

 

> EU April German Final CPI : 0.7% exp.

> UK Q1 Prelim GDP : -1.6% exp.

> UK March Industrial Production : 1.0% exp.

> EU Economic Forecasts

> EU March Industrial Production : 0.8% exp.

> UK Bank of England Gov. Bailey to speak

> US April H/line CPI & Core CPI : 0.2% & 0.3% exp.

> US FOMC Members Clarida and Bostic to speak

> US EIA Crude Oil Inventories : -2.1Mio exp.

 

Will be interesting to see how bond markets react to the budget last night, with currency markets little changed on the session it will really be a look into the impact on local risk sentiment with borders shut until mid-2022. It is all about the US inflation report to print this evening, as consumer inflation is tipped to be increasing at the quickest pace in nearly 10 years. Commentary from the BOE and some more Fed members will provide colour, but expecting sideways trading today leading into the very key US report.

 

Range for the day : 0.7800 – 0.7865

 

AUD/USD Technicals

 

Still elevated above support at 0.7816, sideways moves expected today with little economic data and such a key inflation report from the US this evening. Momentum will build above 0.7860, with the weekly high of 0.7891 the target on the US CPI report. Inflation jitters may see the pair drift lower on risk aversion, down towards 0.7760 on a pronounced move lower.

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