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 currencies overnight it's evenly matched between the Aussie and Kiwi for best on ground over the past 24 hours. Both currencies are up about 0.3% from yesterday morning but both currencies are also off their highs of 0.7286 and 0.6608 respectively. AUDUSD is at 0.7262 while NZDUSD is at 0.6585.
We are one day into a recovery in copper and the CRB index - that helped, but it could prove ephemeral
Just quickly on that price action over the past 24 hours, anyone who told you the AUDUSD rallied because of the employment data yesterday wasn’t paying attention. I say that because I saw plenty of such coverage but also because one of the easiest bets yesterday was that after the Yuan funk the day before the PBOC wasn’t going to facilitate more carnage.
That's because having fought hard to have international investors start to see Chinese markets as reasonable investments moving toward alignment with developed markets – trying but has not succeeded yet - Chinese authorities don’t want onshore or offshore Yuan to go leaping through 7 in USDCNY or USDCNH terms.
The PBOC fix yesterday reinforced that and then in a neatly timed coincidence of the announcement of the trade delegation to Washington – nudge, nudge, wink, wink – also helped currency market sentiment. Certainly stocks took no comfort but it’s capital flight the Chinese do not want.
Anyway, this all happened around the time the jobs data was released and the Aussie rally was again synchronised with the move in the Euro the Yuan/trade news engendered. The Aussie also dipped back with the Euro overnight so this remains very much a USD story that is dominating AUDUSD trade.
So to that end, the Aussie’s machinations are the USD’s machinations and that is unlikely to change in a hurry. So I’d refer you to my Forex Today post where I say essentially the past two days trade are confused. The set up for the rally AGAINST the USD of many pairs is there. As a result I’d like to see the Euro and AUDUSD take out last night’s highs before I get to excited. And even then it’s not a turn in the USD I’d expect just a consolidation.
AUDUSD needs to break 0.7286 to kick on. Don’t forget that long term trend line I shared yesterday though.
The Hang Seng was down more than 1% in pre-market trade yesterday morning but news that China is sending a delegation to Washington for trade talks made that news irrelevant for developed markets with the resultant Yuan gains helping currencies rise against the US dollar while the Australian stock market reversed the best part of the losses it had opened with to close down less than 1 point at 6,328.
But even though the US had a good night SPI traders have lopped 2 points off in the end.
Overall though you can here the drum beat of the buyers each day on the exchange lately. Everything is bullish and no matter what happens in our economy or to the economies and markets in our region. Its only that big BUY button that traders hit. A mate of mine yesterday told clients he was lightening his load and I know for certain he’s not the only “old bloke” like me who is doing the same. That’s all from a fundamental and valuation point of view. And I agree wholeheartedly.
The trouble I have though is we have had a break out of the range which would usually be bullish. And a close above the range top for the ASX and SPI is in and of itself a sign of strength technically. Here’s the chart – my credibility with myself let alone you in a rhetorical sense is shot. The chart is the chart though and I have to respect that.
A LITTLE ON THE ECONOMY
Yesterday’s employment report had something for everyone.
We saw that jobs fell a few thousand but that there was a big increase in full-time and fall in part-time. But because hours worked rose 0.2% and the full-time rise, part-time fall numbers were so close my guess is that most people simply slide over the ABS’ arbitrary 35-hour delineation between full time and part-time work. That the unemployment rate fell to 5.3% is good, but that this was a result of a lower participation rate means it’s no cause for celebration just yet. Net on net though the employment market remains healthy. And it’s likely – given the volatility of this number and the standard deviation associated with the survey – that this is just a bit of statistical give-back. We’ll have to watch the next few months though given the Westpac Consumer sentiment survey suggests workers might be seeing something on the shop floor.
Did you hear the one about the nation that had a debt binge and associated house price surge that went so hard and fast the late cycle buyers had to find a tricky way to buy a home they couldn’t afford? No, I’m not talking about the United States last decade, I’m talking about our very own little of Australia.
Anyway, the AFR ran as story about forced sellers in Sydney’s west yesterday who took out interest-only loans and now can’t afford the P&I repayments. I’ve had a rant with a thread on Twitter yesterday about the trouble this could cause the economy. I won’t repeat it here, but I offer those interested this link.
BUT, BUT, BUT I will also say what I always say when I am presenting on the economy. As long as the jobs market holds up the overall aggregate economy can too. Just look at UK retail sales last night, UK consumers since Brexit I guess. Why are they holding up? Because the jobs market is. Unemployment is 4% in the UK. That’s important.
And on the day RBA governor Lowe speaks before the House of Representatives' Standing Committee on Economics this morning while assistant governor Luci Ellis speaks at the ANU tonight. Ofshore its Singapore trade, Reuters Japan Tankan, inflation in the EU and Canada, and then Michigan consumer confidence in the US.
Have a great day's trading.
Chief Market Strategist
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Stocks soar, powered by first-rate earnings and a dazzling run of economic data; Gold plays catch as G10 falls flat while oil basks in the afterglow