Welcome to my Australia Today column where I'll have a look at some economics, the Aussie dollar, and the outlook for the ASX200 and SPI.
As every Feedback is welcome
THE AUSTRALIAN DOLLAR
Of the commodity bloc the Aussie is again the laggard with a 0.3% loss to sit at 0.7313 this morning after a low in the mid 0.7270’s last night. You have to think the Westpac rate hike (see below) has folks worried about the domestic economy.
The battler lagged again and so too did copper. That’s intriguing really given everything that’s going on in the past 24 hours to provide a positive backdrop, or at least the chance of a positive spin, which would normally help the AUDUSD and the copper price. It’s only one day, so I won’t overegg it, but it is something to watch.
Of course the corollary of that chart is that both prices lagged the Euro’s rally which lagged the Pounds rally. And the Aussie’s move lagged the Canadian dollar’s rally as well as that of the Mexican Peso. Indeed the Aussie’s move was closer to the loss suffered by the Japanese Yen over the past 24 hours.
Throw it all into the pot, give a little incantation and the clear takeaway is that last night’s moves were – for the first time in ages – idiosyncratic, not USD based. That’s no great feat of analysis. But it does suggest CapEx today might be important. It’s a complex number because we’ll both be looking for what feeds into GDP and what expectations about future investment are.
Looking at the charts then and the Aussie is going nowhere at the moment. Naturally even if it lags other pairs a weakening USD environment will naturally lift it. And at the moment on the weeklies, dailies, and 4 hour charts it is making higher lows. But it’s also in a very strong downtrend from the highs above 81 cents and looks to be in a little wedge at the moment on the 4 hours. I find it hard to be bearish right now all things considered. But here’s the 4-hour, you might be able to get a little more clarity.
Here in Australia the ASX 200 surged back to 6,352 for its best close in a decade yesterday and overnight SPI traders have added another 16 points which implies a new decade high today. If the globe is going to be positive then why shouldn’t the local market – especially when the Aussie dollar is lagging at 73 cents.
I was out all afternoon yesterday and had been preparing for that meeting in the morning. So I had no idea the ASX had made the stonking run at 6,350 till I got back home at 9.30pm last night. In SPI terms this is a breakout clear and simple. 138.2% target is 6,470. You’ll see in the discussion on the S&P above that there is no point fighting this is the overall global market leader is going to go higher.
A LITTLE ON THE ECONOMY
14 basis points shouldn’t be a big deal. It’s about $500 a year on a $500,000 mortgage and if it’s not factored into a families finances then it should have been. That’s the theory anyway and one I saw many push on twitter as they said “don’t banks assess at 7% anyway”. Yes, but no.
There are two point here worth making. First, if the banks never assessed a customers expenses properly then the interesting rate setting the bank then uses is redundant – garbage in, garbage out. The second is that behaviourally my sense is there is a large swathe of borrowers who genuinely believed if the bank said they could afford the loan that they could. But because of the first point, a few months in they likely found things were tighter than they thought. So my message to the schadfreuders is, pull your heads in not everyone had your level of financial acumen and they trusted bankers the Royal Commission has shown – and APRA knows – were in many cases lending more than borrowers could REALLY afford without some hardship.
So folks we need to see if other banks follow Westpac and then we need to see what Westpac’s consumer sentiment index and subcomponents (along with the weekly ANZ read) tell us over the next few months as to where consumers are at. I’m genuinely concerned.
On the data front today the release of CapEx for the second quarter is a big deal for the Aussie as it will be an important input in the soon to be released GDP for the quarter. Building approvals is also out as is retail sales in Japan and Kiwi business confidence and building permits. Tonight its German import prices, unemployment, and inflation while credit and mortgage lending data is out in the UK. Euro area business and consumer confidence are out as is Canadian Q2 GDP. And then we get PCE prices, income and spending data out of the US.
That’s plenty to get our teeth into
Have a great day's trading.
Chief Market Strategist
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Ongoing rate curve repricing and risk asset reaction perfectly illustrate how worryingly reliant investors have become on easy money policies