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Global Market Update
The View from Australia

Craig Killaby December 2, 2018



> NZ October Building Consents : 1.5% v. -1.5% prev.

> CN November Manufacturing PMI & Non-Manufacturing PMI : 50.0 & 53.4 v. 50.2 & 53.8 exp.

> EU October German Import Prices : 1.0% v. 0.4% exp.

> EU October German Retail Sales : -0.3% v. 0.4% exp.

> EU November Flash CPI & Flash Core CPI : 2.0% & 1.0% v. 2.1% & 1.1% exp.

> CA September GDP : -0.1% v. 0.1% exp.


Weekend Headlines (BBG)


>  U.S. President Trump and Chinese leader Xi Jinping agreed to keep their trade war from escalating with a promise to halt the imposition of new tariffs for 90 days as the world’s two largest economies negotiate

>  Russia and Saudi Arabia agreed to extend into 2019 their deal to manage the oil market, known as OPEC+, although Moscow and Riyadh have yet to confirm any fresh output cuts


What you need to know


The USD was poised to finish the month of November on a strong note, up 0.4% in DXY terms following some weak PMI figures coming out of the EU and general month end flows. Markets traded sideways for the majority of the Asian session, seeing the AUD slowly drift lower before touching a session low of 0.7285 in the London session. The anticipation was growing for the very important G20 summit, where hopes that a trade deal between the US/China would bring some optimism back into markets and alleviate concerns about a sharp downturn in global growth. Although a formal deal was not reached between President Trump and XI, they did agree to halt any additional tariffs for a 90 day period and pledge to ramp up negotiations during that period. It was also reported that China will agree to purchase a yet unagreed amount of goods in the agricultural sector to help shift the trade imbalance. Market reaction this morning was a flood away from havens and significantly risk-on. The AUD has been a major benefactor of the change in sentiment, up 1% from Friday’s close as a it gapped to a 0.7383 high on the open. CNH has strengthened 0.8% against the Dollar following the news. US equities did not get the benefit of the trade truce of yet, however the S&P500 continued to eek higher following Powell’s dovish comments last week up 0.6%. Powell’s words continued to have an effect on the UST yield curve as the market recalibrates what could be a more dovish Fed seeing both the 2y and 10y yield down 2-3.6bp. Not much to report on the commodities front, with the price of WTI crude unable to push higher despite the Saudis and Russians agreeing to extend their agreement into 2019 however the lack of confirmation of numbers has kept oil traders very jittery seeing the price down 0.85%. Gold down in early trade in a positive risk environment, down 0.25%.


The Day Ahead




> AU November AIG Manufacturing Index : 58.3 prev.

> AU November MI Inflation Gauge : 0.1% prev.

> AU October Building Approvals : -1.4% exp.

> AU Q3 Company Operating Profits : 2.9% exp.

> CN November Caixin Manufacturing PMI : 50.1 exp.

> UK November Manufacturing PMI : 51.6 exp.

> US FOMC Members Quarles, Clarida, Brainard and Williams to speak

> US November ISM Manufacturing PMI : 57.5 exp.


With the 1% gap in the AUDUSD price, would not be surprised to see a slight pullback as we get some more volume come in and take profit on the move. We will get some more GDP inputs before the final figure prints on Wednesday this week, with the positive trade turn on Friday a welcome sign for AUD bulls. Chinese PMI figures will also be eagerly watched, although likely overshadowed by the trade news. Lots of Fedspeak on the docket in the US tonight, with more echoing of the dovish tone from Powell leaving the Dollar vulnerable to more downside. Busy week ahead, with AU GDP the highlight for local investors, Powell’s testimony Thursday and Non-Farm Friday will be the major FX risks for the week.


Range for the day : 0.7330 – 0.7390


AUD/USD Technicals


Very big gap on the chart to open the week and the test will now be to see if it is closed in the very near term. Suspect that traders might attempt to today, but we think price will remain well supported and on track to test our initial target at the 200 day SMA, currently at 0.7418. A further squeeze higher looks to be on the cards as real money will be forced to do something if/when we close above the 200 day SMA. Buy dips down towards Friday’s close at 0.7306, although we not see such a big pullback and gap close today. Support at 0.7320, 0.7300/05, 0.7280. Resistance 0.7390/00, 0.7418, 0.7500.


Technical Analysis written by APAC Head of Treasury Richard Breen



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