Originally published by AxiTrader
THE AUSTRALIAN DOLLAR
BHP Billiton (AX:BHP), Rio Tinto (AX:RIO), Glencore (LON:GLEN), Anglo American (LON:AAL), and Vale (NYSE:VALE) – among others – got belted last night. Copper last another half a percent to $2.72%. Commodity currencies were lower too amid more industrial metals weakness. So this morning AUD/USD is at 0.7363 for a loss of 0.55%
Trade blew the roof off yesterday with a $1.8+ billion surplus. But the AUD/USD couldn’t rally.
Yes it was price effects, but the lack of reaction suggested something was awry in terms of price action from the lack of reaction. Even the headline-chasing algos couldn’t move AUD/USD more than a few points. I actually said to a mate I was hoping for the rally so I could sell it.
But that rally never came and the Aussie was again dragged down by the big euro fall and the dip in the price of copper.
Equally though if you abstract the recovery in tech last night and look at copper, at the big fall in mining stocks again, and in the performance of non-US stock markets, and EM currencies, you see this creeping risk-off tone which is favouring the US dollar and hurting the Aussie – among others.
So far that’s just knocked the Aussie back toward the bottom of this recent range.
But two events today could disturb that rather quiet and range bound trade – in broad terms anyway. Those events are of course retail sales at 11.30 am AEST. It would be a surprise if they are a surprise. But data is always subject to variability. Given the current mood a miss to the downside would likely hurt the AUDUSD more than a strong number. The other even, of course, is the all-important non-farm payrolls tonight at 10.30pm AEDT. Whether it will be strong enough to see Euro break 1.15 and drag the Aussie with it is debatable given the heavy US dollar longs being carried by the market at the moment. And of course a weak number could see AUD/USD rally back toward 0.7400/20.
Here's the daily chart - the levels are clear.
ASX INDEXES
Overall sentiment was rescued by Apple (NASDAQ:AAPL) and the Nasdaq, but is that relevant for the ASX?
SPI traders are clearly betting that is the case, but I’m not so sure given the weakness in miners and news in the AFR the Treasurer is gunning for the banks once again. But the SPI’s had a long-legged day where the bulls won – it’s actually in the black after falling to 6,169 – just above my target zone of 6,145/60. But it’s not there yet. So while below the range top I still have a downside bias.
A LITTLE ON THE ECONOMY
Is Westpac Banking Corporation (AX:WBC) starting to think about a rate cut? That’s the question I was asking myself yesterday and which the Kouk asked explicitly on Twitter yesterday after the bank’s long time chief economist Bill Evans said “Political uncertainty casts doubt on the RBA’s optimistic employment forecasts”. He cited evidence from the 2013and 2016 election campaigns and said the slowdown in employment “must be disturbing” for the RBA. Worse still Evans argued that unlike the previous elections where the result seemed somewhat certain, last week’s “by-election results; and the government’s slim one seat majority all point to considerable political uncertainty”.
And we all know that uncertainty is poison for business and consumers, just look at the impact of fear of a trade war on the global economy right now. It hasn’t even properly kicked off. So while Bill hasn’t actually come around to calling a rate cut – though if anyone goes first it will be him – he has said at the end of his note, “history around election periods raises significant uncertainty about the sustainability of the Bank’s employment forecasts and hence their expectation of above trend economic growth”. Oh, and that’s before we factor in what might happen if this house price fall accelerates in the manner I think it could.
Oh and if you want to know where the economy is, where demand for debt is, and where house pries might go, just look at the ANZ (AX:ANZ) cutting rates on owner occupied loans yesterday by 34 points
DATA:
On the day here in Australia we get the very important retail sales reports. The market is expecting 0.3% for the month of June and 0.8% in quarterly terms. It’s a big one in terms of where the economy is right now and could move the market.
Offshore its services/non-manufacturing PMI day. The Caixin print in China will be worth a look as will Japan, Asia, and of course everywhere else. Services need to hold up to balance out the dip we are seeing in manufacturing at the moment. But nothing really matters other than the release of July’s US non-farm payrolls. Economists are forecasting 190,000 jobs, 3.9% unemployment, and earnings to rise 0.3%.
Have a great day's trading.