Originally published by Rivkin Securities
The Australian dollar traded -0.33% weaker on Monday although managed to close well off its lows after declining as much as -0.76% earlier in the session shown on the first chart below. The move was on the back of retail sales data (MoM Dec) which declined -0.1% after a +0.1% gain in November and estimates of +0.3%. Over the final quarter of 2016 sales adjusted for inflation painted a more positive outlook, rising +0.9 in line with forecasts after a -0.1% decline prior.
The currency was also weighed on by the Chinese Caixin PMI reports which slowed for the month of January. The PMI report for services declined modestly to 53.1 from 53.4 in December, remaining above the key 50 level that signals expansion and the composite report was also above the 50 level after falling to 52.2 from 53.5 previously. Taken together with the manufacturing PMI report last week the surveys suggest despite a small decrease in momentum the Chinese economy will continue with fairly stable growth in 2017 extending the 2016 theme of stabilisation.
Globally equity benchmarks took a breather following solid gains on Friday, in the US the S&P 500 declined -0.21% while the Nasdaq 100 was up +0.12%. In Europe equities were lower, led by declines in the Euro Stoxx 600 and DAX of -0.68% and -1.22% respectively and the CAC40 traded -0.98% lower. The euro weakened -0.28% against the US dollar along with European bond yields, both the French and German two-year yields declining -1.6 and -3 basis points respectively. The second chart below shows the euro making an initial pullback following a test of technical resistance at the 1.08 level.
The ten-year yields told a slightly different story, with the German yield declining -4.5 basis points while the French yields rose +6.6 basis points as investors look to the upcoming French presidential election on April 23rd. The rise in the French 10-year yield is attributed to Presidential candidate Marine Le Pen launching her bid for presidency on Sunday where she outlined her policies. Despite the reaction in the French yields, polls show Le Pen would finish runner up by a wide margin to either Independent Emmanuel Macron or Republican Francois Fillion.
Locally we can expect a modest start to trading with ASX SPI200 futures down 6 points in overnight trading ahead of the Reserve Bank of Australia’s monetary policy decision due at 2:30pm Sydney time today. No changes are expected as the central bank continues to balance below target inflation against the build-up in household leverage.
Data releases:
· RBA Decision 2:30pm AEDT
· German Industrial Production (MoM & YoY Dec) 6:00pm AEDT
· U.K. Halifax House Prices (MoM Jan) 7:30pm AEDT
· U.S. Trade Balance (MoM Dec)
Chart 1 – AUD/USD
Chart 2 – EUR/USD
