Welcome to my Australia Today column where I'l have a look at some economics, the Aussie dollar, andthe outlook for the ASX200 and SPI.
As every Feedback is welcome
A LITTLE ON THE ECONOMY
The Westpac leading index was interesting reading yesterday.
It fell to -0.33 which Westpac said was the first below trend reading since September last year and the weakest index growth rate since July 2017. That’s taken the index from comfortably above trend to below trend which Westpac said accounts for its expectation of growth for the Australian economy in 2018 and 2019.
That is very different from what the RBA is telling us folks.
I put together a presentation last night on the outlook for Australian consumers as we head toward Christmas. The high level takeaway is that with the NAB business survey still strong, the consumer mood – as represented by Westpac’s consumer sentiment – upbeat, ABS retail sales lifting, and the NAB cashless retail sales index indicating that continued in June, then there is a break between what we think is ailing consumers and what the data seems to show. Consumers appear to be more resilient than many, myself included expected. A big part of that is the employment picture. And while jobs growth has stalled in 2018 compared to 2017’s rollicking pace the employment market still seems strong.
It’s against this positive, but uncertain, backdrop that today’s employment data is to be released. A strong number would be a welcome catchup to the recent lull in employment growth. But either way the outcome, and the associated unemployment rate is likely to be an important piece of the consumer puzzle which the RBA and the rest of us are pondering.
THE AUSTRALIAN DOLLAR
The commodity bloc did better than the Euro, GBP and Yen overnight with the bounce in copper (+0.5% to $2.75 a pound) and oil (+1% for both WTI and Brent) among other commodities, plus the continued rally in metals and mining shares fuelling a little strength.
The AUDUSD, which fell to around 0.7342 has bounced half a cent to sit at 0.7399, up 0.18% since 7am yesterday. It’s as if the Chinese Yuan isn’t still falling and the headwinds have abated. Granted, the USDCNH and CNY are off their highs – but this AUD rally is more than just a USD move folks.
Today;'s employment report will be important for the AUDUSD.
There is still a strong cabal of USD bears out there and a big part of their case is that other central banks are still leaning toward tightening. Indeed I read some research from one of the bulge bracket US investment banks this week which suggested the RBA was hawkish in their minutes because they said the next move is up in rates.
The nuances of the minutes are clearly lost in this analysis.
But that’s an important tell to the time that offshore players allocate to Aussie dollar analysis. It might be one of the most heavily traded currencies on the planet, but it still exists in the periphery outside the big boys.
I gave up punting this jobs figure more than 25 years ago because of the noise it often shows. But that’s my way of saying the headline effect of the announcement today is likely to move the AUDUSD – and the crosses – if the outcome materially deviates from the 17,000 new jobs expected and 5.4% unemployment rate.
Given the Aussie fought back nicely from the lows – better than the Euro and the other majors, the vulnerable side is likely the downside on a miss. But then again the bounce has also reinforced that buyers are lurking in the commodity bloc currencies in the same way they seem to have returned to but global mining and metals shares.
That’s interesting. I need to see if I’ve missed something. It might be as simple as a relative value bet on metals and mining versus the FAANGS. I’m not sure. But it’s important for the AUSUSD which has managed to climb back inside the 4-hour uptrend channel
On the day support is at 0.7383, then 0.7367 and 0.7340/42 – last night’s low. On the topside resistance is 0.7407 then 0.7427/37
The SPI, the ASX, benefitted from the metals and mining buying with the basic materials sector doing well yesterday.
Of course, it was an overall good day as the market bounced off support in SPI terms and back above the short term support in Cash CFD terms. Today looks set to be another good day with SPI traders adding 11 points overnight. Watch out for an uptick in trade rhetoric though after Larry Kudlow ill-advised comments about Chinese President Xi overnight.
So far the ASX has rallied under its own steam and on the back of the moves in the US and Europe. It has ignored the ongoing malaise in Chinese stock markets and what that might suggest about the growth outlook for our major trading partner. Anyway, we’ll see.
In price action terms its simply a case of respecting the uptrend from April unless or until it breaks.
The physical is still yet to take out the recent high but the trend remains intact. Likewise the SPI as you can see here in this chart. It still looks like a toping pattern…but until the trendline and 38.2% retracement level give way I’m not fighting it.
On the day today the big release is Australian employment for June. The Reuters poll says the market is looking for an increase of 17,000 jobs and an unemployment rate of 5.4%. Australian data has improved a little recently. This is very important for the Aussie dollar and interest rate markets still grappling with exactly where households and consumers are at.
Retail sales in the UK will be important for forex traders and other than that it’s just jobless claims and the Philly Fed manufacturing index in the US.
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