The FX markets actually had a fairly stable session following on from the Monday-gap open (DXY; Unchanged @ 97.50), seen as a result of the latest POTUS tweet which increased the trade tensions between the US/China, with punitive tariffs due to commence on Friday. The real action was in the stock markets where the US indices, after having gapped sharply lower in the futures markets through Asia/Europe, slowly recovered through the US session to end the day down around -0.25%/-0.4%, up from earlier levels of having traded down by around 2%. The US recovery has largely filled the technical chart gap and came about despite the Shanghai Comp Index finishing Monday down around 6.5%. Further direction will largely depend on potential progress of talks between the US and China, although if/when Friday approaches with no breakthrough I cannot see the indices driving back to the recent highs, and would look for levels to sell into. Right at the end of the US session comments from the US trade representative (Lighthizer) and the Treasury Secretary (Mnuchin) confirmed that the higher China tariffs will be implemented on Friday, sending the Jpy higher and the Aud$ lower, both by around 20 points against the US$, while also seeing some movement in the crosses.
The FX markets were choppy, with the main winners being the US$ and the Jpy, which were both underpinned by safe-haven demand, while the biggest loser was the Aud$, although that has bounced back from levels last seen in February 2016, ignoring the January flash crash, and now awaits today’s RBA Interest Rate Decision..
Elsewhere, WTI had a similar session in gapping down to a low of 60.00, but since recovering strongly, to currently sit at 62.60. The oil price generally followed the stock markets but after having dropped sharply to its lows, WTI then received additional assistance following earlier reports that Israel had passed information to the US about an alleged Iranian plot to attack US interests in the Persian Gulf, had been called off.
Looking ahead, the main interest today will come from Australia, where we commence with the April AIG Performance of Construction Index, the March Retail Sales (exp +0.2%mm) and Trade Balance (exp +4.25 bio), although the real interest will lie in the RBA Meeting, at which the market is now pretty much evenly balanced as to whether to expect a rate cut or not. I suspect they won’t do so ahead of the election (May 18), but once that is out of the way, we can probably expect 2 cuts later during the year, one pretty much straight away after it is over. Given the ongoing trade concerns over US/China tariffs, I think the Aud$ is headed lower, either from here, or from wherever it may spike up to in the event of the RBA doing nothing today – which will only provide a better sell opportunity imho.
The rest of today’s session will be rather uninspiring, with just the Nikkei Mfg PMI to come from Japan and the German Factory Orders to come from Europe. The US will be equally thin, with just the API Weekly Crude Oil Stock Inventory and the March Consumer Credit Change due. Kiwi traders should note that the Global Dairy Trade Index will be released at midday London time. Although the US calendar will be thin, further POTUS Tweets may well keep us on our toes! Have a good day.
Economic data highlights will include:
Tue: AIG Australian Performance of Construction Index, Retail Sales, RBA Interest Rate Decision/Statement, Japan Nikkei Mfg PMI, German Factory Orders, Global Dairy Trade Index, Consumer Credit Change, API Weekly Crude Oil Stock Inventory
Market moves, in brief:
FX: DXY 97.52 (+0.04%)
Bonds: US10Y; 2.48% (-1.87%), German 10Y; +0.008% (-68%), UK 10Y; 1.22% (+0.3%), Australian 10Y; 1.749% (-2.88%), NZ 10Y; 1.87% (-1.58 %), China 10Y; 3.35% (-1.46%)
Stock Indices: DJI; -0.25%, S+P; -0.45%, NASDAQ; -0.50%, EUStoxx50; -1.13%, FTSE100; 0.00%, Shanghai Composite; -6.5%,
Metals: Gold $1280 oz (+0.10%), Silver $14.90 oz (-0.22%), Copper $2.844 lb (+0.80%), Iron Ore $93.50 per tonne (NYMEX) (-0.32%),
Oil: WTI $62.50 pb (1.03%)
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