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 jobs data for June that was released yesterday was a thundering beat with a print of 50,900. That the unemployment rate held steady at 5.4% (technically 5.37, the lowest since November 2012) was a testament to the increased participation rate which balanced out the increase in jobs. We also saw an increase in the employment to population ratio.
All of this, every single bit, is good news for the Australian economy.
It put the finishing touches on the presentation I’ve put together for some advertising agencies as they ready themselves for the run toward Christmas. The high level takeaway when I looked at the NAB Business survey, May’s retail sales, Westpac consumer confidence, the NAB cashless sales report, jobs, and housing is that while I’ve consistently highlighted that consumers faced headwinds the overall health of the economy and growth in employment should forestall any real reduction in consumption.” I’d also add that after the third or fourth mini-dip over the past few years consumers seem to have again regained their confidence.
How good, how strong, and how long that lasts will depend on the evolution of the employment market, of house price falls, and of the overall impact of the Trade War on global confidence and economic activity. The signs for the moment are however things are on the up once more.
Indeed, the Citibank Economic Surprise Index for Australia bounced to 34.4 after the data yesterday. That’s the strongest print we’ve seen since January this year. We’ll see how things track in the next month.
THE AUSTRALIAN DOLLAR
The Chinese Yuan has lost 0.8% in onshore terms and 0.66% in offshore terms now at 6.7883 and 6.7701 respectively. That, and growing concerns about the impact of the trade war on growth have weighed on the Aussie dollar which was pretty strong after yesterday’s massive 50k jobs print. It’s a little less than a cent off the highs at 0.7357 for a loss of 0.5%.
That's after the Australian dollar rocketed higher yesterday on the jobs print. You’d expect that. But as I tweeted soon after the result yesterday, “By any measure, a thunderous beat like this morning's #ozjobs should have seen the $AUDUSD even higher. But there is a fair chance #traders might be watching and wondering what kind of a handbrake the Yuan move provides”.
At that point the USDCNY and CNH were ripping higher (Yuan weakness) and the gap between the Aussie move and the Yuan’s collapse was as wide as it’s been in weeks. Importantly it was directionally inconsistent. That gap has now been closed. Here's 30 minute $USDCNH (inverted) v Aussie.
What that tells us about the Aussie dollar is that even if the USD struggles a little against a major like the Euro the Aussie may not get the full benefit of that move because the focus is genuinely turning to concerns about the outlook for global growth. The BdF report overnight is just the latest in a long line of growing reports which suggest global growth is going to take a hit if this trade war escalates. And with no signs that it will not is it any surprise that base metals and the Aussie dollar are under pressure. With China also apparently keen to use the Yuan as a weapon the risks are that the Aussie stays offered.
ON the day though I’m not so sure- the 4-hours look more like a range than a trend.
73 cents – or thereabouts – has been reinforced once again. And the bounce from the overnight low ~0.7320/22 looks like it could garner some further traction. SO I’m looking at 0.7340/42 as support and a run toward 0.7369/72, then 0.7383, maybe even 0.7390/95.
The ASX finished up 18 points yesterday but the rally faded into the close as sentiment soured in Asia. SPI traders have only knocked 8 points off prices overnight which to me seems a little light given the President has signaled an appetite to continue this trade war which will impact growth – but perhaps the fall in the Aussie has offset some of that concern.
If the Aussie dollar is going to get caught up in the maelstrom, if the base and industrial metals complex is going to go offered, if global growth is going to be downgraded because of the trade war, then that is not a constructive environment for stocks. Not here in Australia and not globally.
But, while my rhetorical self still has some deep misgivings about this move on the ASX my technical self says I have to stick with it unless or until the trend breaks.
To that end then, it is worth noting that the SPI and the physical ASX continue to trade higher and respecting the uptrend which stretches back to March/April this year. But they are looking tired. Unless we see a break up through the highs the technical set up does seem to be resolving toward a test lower.
For the SPI it’s 6145/50 and for the physical ASX it’s 6175ish. On the day the 4-hour SPI looks biased lower if 6,198 breaks. It’s at 6201 now.
On the day it’s fairly quiet. We get Kiwi visitor arrivals and then Japanese inflation data before tonight's release of German PPI. We also get inflation and retail sales in Canada.
Have a great day's trading.
Chief Market Strategist
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