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Global Market Update
The View from Australia

by Craig Killaby | August 31, 2021

Data/Speakers

 

> CN August Manufacturing PMI & Non-Manufacturing PMI : 50.1 & 47.5 v. 50.2 & 52.1 exp.

> NZ August ANZ Business Confidence : -14.2 v. -3.8 prev.

> AU July Building Approvals : -8.6% v. -5.0% exp.

> AU Q2 Current Account : 20.5Bio v. 21.5Bio exp.

> CA June GDP : 0.7% v. 0.7% exp.

> US August Chicago PMI : 66.8 v. 68.0 exp.

> US August CB Consumer Confidence : 113.8 v. 122.9 exp.

 

Overnight Headlines (BBG)

> Volatility may start to increase in Canada as the incumbent PM faced a speedbump on a relatively soft GDP report, as the September 20th election inches closer

> Eurozone inflation has hit the highest level in a decade, reaching 3% in August as the decision to taper their robust PEPP plan comes into focus

What you need to know

The fallout from Powell’s speech continued, as some of the Dollar longs put into place leading up to Jackson Hole slowly unwind and risk appetite seemed to turn marginally positive in Asia. The Chinese PMIs missed the mark on the composite figure, as the services sector was hit by the resurgence of the COVID19 Delta variant and put some downside pressure on global growth prospects. AUDUSD was slightly softer on the release, although buoyed a short time later by the news from NZ that they will be easing restrictions as they seem to have quelled the recent COVID outbreak and investors started to look ahead to October, where it will be more likely than not that the RBNZ pulls the trigger on a rate hike. AUDNZD was the biggest cross mover on the session, touching fresh lows and down 0.4% on the day. The current account surplus in AU posted the largest on record, while the net export figures and private spending numbers have seen those economists positioned for a contraction in Q2 GDP refresh their figures higher and the AUDUSD got a nice boost into the close.

 

End of month flows a factor, with the Dollar struggling in the tail end of the Asia before settling. The pair touched a high of 0.7341 before paring gains into Europe and the US sessions. The ECB has been cautious in the wake of the pandemic, however inflationary pressures are starting to mount in the Eurozone and have some ECB members questioning when the tapering of purchases should take place. EURUSD was up, only to falter on some USD haven buying on some poor US data. That data came by way of softer consumer confidence figures, contracting in August and seeing the impact that the Delta strain is having on the economy. US equity markets unable to break through the recent highs on the S&P500, down 0.2% for the day, although having yet another stellar month of gains. UST yields broke higher across the curve, with the 2y,10y and 30y all up on the day. Commodity prices are softer as we open in Asia, as Iron Ore and Copper continue their very whippy run as the China growth story comes into focus. While WTI crude is lower ahead of the always contentious OPEC meetings, with production decisions in the limelight.

 

The Day Ahead

 

Data

 

> JP August Final Manufacturing PMI : 52.4 exp.

> AU Q2 GDP : 0.5% exp.

> CN August Caixin Manufacturing PMI : 50.2 exp.

> EU August German Manufacturing PMI : 62.7 exp.

> OPEC Meetings

> US August ADP Non-Farm Employment Change : 620K exp.

> US August ISM Manufacturing PMI : 58.5 exp.

> US August ISM Manufacturing Prices : 83.8 exp.

> US EIA Crude Oil Inventories : -2.5Mio exp.

> US FOMC Member Bostic to speak

 

Today may show markets how the AU economy was tracking in Q2 before it was derailed as the Delta outbreak took a stranglehold on the local economy and locked up the vast majority of Australians. Growth is expected at 0.5%, with the number hinging on strong household consumption figures to ensure a technical recession is off the table for AU.

 

More Chinese PMI figures hitting the wires shortly after, while private payroll figures will be on the docket in the US ahead of the ISM manufacturing numbers. This may be the last day of major movement before consolidation leading into the US NFP report on Friday night, the question still remains post-Powell as to whether a strong report will actually move the goalposts for the Fed as they seem to be taking a very cautious approach to policy.

 

Range Today : 0.7290 – 0.7340

 

AUD/USD Technicals

 

Resistance at 0.7340 had held up quite well intraday, however the bulls seem relentless in the near term as they seem to be jumping on the dovish commentary from the Fed Chair in the early part of the week. That 21DMA is the level to watch intraday, now sitting at 0.7296 as the choppy EOM flows start to ease. The target on a breakout will be the 50DMA at 0.7381, with the GDP number the key today.

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