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Global Market Update
The View from Australia

Craig Killaby January 28, 2019



> NZ December Visitor Arrivals : 2.1% v 4.2% (rev.) prev.

> EU January German IFO Business Climate : 99.1 v. 100.7 exp.


Weekend Headlines (BBG)


>  ECB’s Mario Draghi said that while the euro-area economy is looking bleaker than anticipated, it’s not bad enough to warrant

additional monetary support

>  Jacob Rees-Mogg, leader of the pro-Brexit caucus of lawmakers known as the ERG, said the group won’t back amendments that aim to rewrite the Irish backstop in a debate in Parliament on Tuesday

>  The longest government shutdown concluded over the weekend, with estimates that the shutdown cost the government up to USD$3bio



What you need to know


Slight risk aversion the theme for yesterday’s thin holiday session, with the Aussies of in observance of Australia Day on Monday. Catching up on what we missed over the weekend, the government shutdown is over (for now) as Trump signed a three week stopgap bill to open the government up after the longest shutdown in US history. The situation in the UK continues to develop, with PM May vowing to put together a revised deal that will remove the most contentious part of the deal with the Irish backstop. GBPUSD had a slight 0.3% reprieve from its bullish run last week, up over 1% before comments from the EU negotiator that they are preparing for a no-deal Brexit damaged the bullish momentum. The eyes of financial markets will be on Washington, as a Chinese delegation arrives to try and get a trade deal done prior to the March 1st deadline agreed to last November. The US justice department is putting the negotiations on a tricky start as they formally file charges on the Huawei CFO detained in Canada earlier this month. The market does not seem to like the lack of progress seen on trade, and the signs of soft demand in China seen from the drop in earnings reported from the worlds largest equipment maker saw an over 9% drop in their share price.


In FX markets, risk aversion saw the AUD off of yesterday’s 0.7204 high to sit comfortably below the 100/55DMA although up over 1% from Friday’s opening prices. The Dollar has had a tumble since Friday, seeing the DXY down 0.8% as the market starts to look ahead to the Fed keeping rates on hold this week. The NZD and the AUD were the best performers amongst the majors, with eyes on tomorrow’s AU consumer inflation report for its near term direction. The S&P500 was down to start the week and up a touch from Friday, with the news of forecasts cuts from Caterpillar (equipment) and Nvidia (computer chips) weighed heavily on market sentiment. UST yields rising across the curve, with the 2s and 10s up just a touch over 3bp. Great start to the week for most of the commodities sector, with Copper and Iron ore up sharply from Friday. WTI crude continues to whip around, down 1.75% from Friday. Gold up 1.8%.


The Day Ahead




> NZ December Trade Balance : 225M exp.

> AU December NAB Business Confidence : 3 prev.

> US January CB Consumer Confidence : 125.0 exp.


With volume coming back in after the local holiday, I would not be surprised to see a slight pullback towards the lower 0.7100s. As the market gears up for the Fed meeting and Non-Farms Friday from the US, the APAC market will have all eyes on the Q4 Consumer inflation report from last year. With NAB’s decision to hike rates on home loans, the idea of rate hikes/cuts came right back into the forefront and sliding AU bond yields ignited and AUD selloff. Expecting the AUD to trade sideways leading into tomorrow’s data, with only a tier2 survey from NAB providing a data catalyst for the session. Headline risks will be the key this week as the trade negotiations between the US/China ramp up, any sort of deal (or lack of) will likely affect the AUD.


Range for the day : 0.7140 – 0.7205


AUD/USD Technicals


The Aussie looked poised for a bullish run in holiday trading, however resistance at 0.7200 was felt and quickly reversed trend. AUD/USD seems to be happy sitting right around the 55/100 DMA at 0.7168/70 with last year’s December high (0.7247) acting as the biggest obstacle for a significant push higher. Last week’s low of 0.7076 acting as immediate support, with slide leaving the pair open for a swift fall all the was to the flash crash lows of Jan 3rd/4th 0.6990/0.6741.


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