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
Looking at the G10 forex universe over the past 24 hours shows the Aussie dollar the stand out performer with a 0.3% gain to 0.7212. What's so impressive about this move is that this gain is actually much stronger when judged against the post-retail sales low around 0.7175 yesterday.
Aussie dollar traders got caught short yesterday when retail sales weakness was counterbalanced by the partials for GDP which suggest the chance of an upside surprise for growth in Wednesday’s GDP. I’m characterising it as the dark clouds are ahead but GDP means traders might find it easier to focus on the past. See the economy section below.
What also helped the Aussie dollar was that the Euro got a lift from its lows as well. So it’s still the case that the battler is being influenced by the Euro and by extension the US dollar. In many ways though with US markets out it was only ever going to be short term players that pushed the Aussie and other markets around. So while the 4 hour bias is up the daily bias is still lower for the Aussie. The RBA today may influence things, as might the release of Q2 current account and government sector data which also feed into tomorrow’s GDP. We could see a bounce if they increase chances of an upward surprise tomorrow.
Looking at the charts then, and we may even see a rally to 0.7260/65 based on this setup in the 4 hours. A break of 0.7225 is necessary first though. And I'll be fading the rally if it comes.
Asia, and Chinese commodity markets had a shocker yesterday – down again. That didn’t hurt the local market too much with the ASX losing just 9 points. SPI traders were down three an hour ago, then up 5, now they are down 2 again. We’ll see where we go today.
ASX will likely have another day of not doing too much as it waits for the US tonight. Down 8.6 points yesterday for the physical while SPI traders have found 5 points overnight there isn’t much action. If not a stock picker but the bit below in the economy section gives me pause on the outlook for some particular sectors of the economy. If employment slows in this current economic circumstances then the outlook for the economy and thus locally facing sectors will darken. But the Aussie should fall on that basis helping other sectors.
At an index level the market will reflect these competing or complimentary moves. For the moment though the SPI looks like it’s short uptrend is at risk if it falls below 6,284.
A LITTLE ON THE ECONOMY
I could write quite a bit this morning about the economy. But in a market sense it seems that there is a real chance the path of where the Australian economy is headed gets clouded this week by where it’s been with Wednesday’s GDP print now looking like it could have upward surprises.
Here’s a snapshot of the yarns from Business Insider which sums things up because with limited time this morning I want to highlight a disturbing thing I saw last night. Sam Jacobs highlights that “Australia's latest round of economic growth indicators were steady if not spectacular” but on balance were okay and could see upward nudge to Q2 GDP. He also wrote about the troubling trend in the ANZ job ads which now suggests “Australia's jobs market is now more 'vulnerable' to negative shocks”.
But it’s Scutty’s pieces I really want to focus on – you’ll see why in a sec. Here’s a tast of the headlines, and remember folks, Business Insider is not a undies on your heads pants on fire kind of business publication – it’s much more sober than that. Anyway Scutty wrote these articles yesterday, “Australia's housing downturn is deepening as prices fall across most parts of the country”, “Australian retail sales stall” with that awful flat result for July, “China's economy is now facing 'relatively obvious downward pressure’” after the PMI result fell to a 14 month low and these next two are the key to the point I want to make below. Scutty also wrote, “Why you - the consumer - remain the biggest risk facing the Australian economy” – okay, slightly more hyperbolic than usual – and “Australia's housing downturn could turn into the 'longest and deepest in modern history'”. I know you’re wondering why the Aussie dollar rose right?
And here’s where it gets really scary for the economy and why I wanted to highlight GDP is a rearview mirror look at the road behind us but all of those articles from Dave, the one about Job Ads from Sam and this tweet from me show the road ahead.
The Chartist (NickR) is a fellow in Queensland who has been in markets a little longer than me, has a good pedigree, is well regarded, and rather sober when it comes to these things. So this is not histrionics. My summary that his friends are being forced to sell, had a low LVR, because the bank deemed them to have had not enough income I got from answers Nick made to question on this tweet.
This is exactly what troubles me about the outlook folks. Yesterday’s company data showed wages rose at a 4.5% which is more than double the rate of individual wages growth – so that increase is due to employment growth. Average Australians still feel like they are struggling and the banks having lent loans they probably couldn’t under the beefed up – and some might actually adhered to – rules are now looking to pass the risk back to the borrower and getting them off their books.
House prices, retail sales, employment – the future has darkened. I’ll be fading the GDP rally if it comes. Will the RBA say anything today? Probably not. They’re focussed on GDP growth.
I THINK I DID WRITE QUITE A BIT, SORRY :s
On the day South Korean GDP and inflation kicks us off before the Australian Q2 current account and government data to feed into tomorrow’s Q2 GDP. We also get the RBA decision and governor’s statement at 2.30 pm my time and then governor Lowe is speaking in Perth this evening. Euro PPI, UK construction PMI, and then US ISM and Markit manufacturing PMI’s are released along with construction spending and the IBD/TIPP economic optimism index.
Have a great day's trading.
Chief Market Strategist
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