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Global Market Update
The View from Australia

by Craig Killaby | July 20, 2021



> JP June National Core CPI : 0.2% v. 0.2% exp.   

> EU June German PPI : 1.3% v. 1.3% exp.

> US June Building Permits : 1.60Mio v. 1.69Mio exp.

> US June Housing Starts : 1.64Mio v. 1.59Mio exp.


Overnight Headlines (BBG)

> COVID19 Delta variant fears are gripping markets, as investors weigh up the probability of global Central Banks tightening policy as the world approaches a worrisome period of the pandemic as restrictions are lifted and case numbers skyrocket

What you need to know

The negative risk sentiment continues to mount for global markets, with the AUD and NZD two of the worst performers in Asia as investors weigh up the path ahead for growth in light of the COVID19 Delta surge. Local markets were focused on the RBA’s meeting minutes in the morning session, and as expected they washed over markets without much movement as the significant change of events over the last two weeks post-meeting made them outdated. Later in the session the AUDUSD broke through the YTD low and set its path for the fresh overnight low of 0.7300 following expectations from WBC economist Evans that QE will actually be increased rather than tapered by the RBA in September. An interesting forecast as major banks/economists rush to change their tune after calling for a much higher AUD only weeks ago.


It was a mixed session for equities, with local equities still struggling down near 0.5% while US equities rebounded sharply as bond markets saw rate hike bets pared from the US Federal Reserve. There seems to be some heavy downside pressure mounting on the Pound, as the UK government is engaged in heavy infighting as debates as to whether or not the move to remove all restrictions despite extremely high case numbers is the right one. GBPUSD down 0.3%, while the USD rose yet again up 0.15% in DXY terms. Inflation concerns may be back in play, with UST yields rising across the curve on the session as the prospects of further US fiscal support nears.


The Loonie was a strong performer up 0.5% against the USD, as the price of WTI crude was able to rebound and finish the day up 1.4%. Strong rebound for US equities, as the prospects of Fed policy and government stimulus saw investors optimistic on cheap money conditions. Mixed bag on commodity markets, with Iron Ore finishing the session down 1.3% while Copper was able to rebound 1.75%. Gold unable to move higher despite the risk aversion, down 0.20%.


The Day Ahead




> AU June Preliminary Retail Sales : -0.7% exp.  

> AU June MI Leading Index : -0.1% prev.

> US EIA Crude Oil Inventories : -4.6Mio exp.


Considering the sheer number of people in Australia confined to their homes is sitting around 12million after South Australia went into lockdown on a mere five cases, the prospect of local optimism is very dim. The YTD low now sits at the 0.7300 handle, with the 0.7289 level seeming to be the last hope on the trickle lower towards the likely 0.7250 level. It has become abundantly clear that investors had not priced in the resurgence of the virus in a real way in the back half 2021, now the question remains as to what happens next.


Locally, June preliminary retail numbers are likely to be moot yet again as the month of July will have seen a major pullback due to restrictions. Bond markets will be a key driver as investors weigh up what the Fed will do in the wake of increased COVID case numbers, while locally the Australian population will need to weigh up how long this lockdown will actually be with the vaccine the key way out and little supply.


Range Today : 0.7310 – 0.7360


AUD/USD Technicals


Well entrenched in a downtrend, there is a slight chance of a rebound back up to the 0.7300 middle as the Fed bets are unwound. The target will be the intraday high of 0.7357 while the YTD low now sitting at the psychological level of 0.7300 likely to provide for some choppy trading around the figure.

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