A consistent theme has been the sell-off in bond markets as equities now seem to be responding to this as well. Greece managed to return to the fore with a bit of pessimism returning, resulting in a bit of chaos in the periphery. It wasn’t only peripheral yields which rose as bunds remained on the back foot as well.
Surprisingly, though, the euro remains resilient and even recovered from a dip to remain relatively steady around the $1.1180 region. Upgrades to the EU’s growth and inflation forecasts were a minor positive for European markets. There was no solace in US trade as investors focused on a set of poor March trade data. This data kept the greenback on the back foot as analysts feel it shows an even gloomier picture for Q1 GDP.
AUD continues its run
AUD/USD was one of the best performers against the greenback as the momentum from yesterday’s RBA statement continues to drive sentiment. Every data print out of the domestic economy will be closely scrutinised as traders remain sceptical about this AUD rally.
On the calendar today we have April retail sales due out at 11.30am. Following the previous month’s strong reading, this data will be closely watched, particularly the electronic goods sector. This sector really drove sales and was consistent with an increase in credit and lending demand. The market is expecting a 0.4% rise with a range of 0.1% to 0.6%.
Thursday brings jobs numbers, of which the market is looking for 4000 jobs added. Of course the SoMP and budget will be very influential as well, giving us more insight into the RBA’s economic assessment. The price action on AUD/USD is fairly constructive, and from the RSIs, the rate of change in price is bullish at present.
It’ll be worth watching how the pair acts around $0.8076 (April high). A break would naturally be positive, but I would still be using moves to $0.8150 to $0.8200 to initiate shorts. The current curve is pricing a 50% chance of another cut by September, although yesterday’s narrative from the RBA did little to reinforce that view.
Banks key for today’s session
Ahead of the local market open we are calling the ASX 200 down 0.9% at 5773. Yesterday’s sharp reversal from the highs was quite alarming and left a nasty reversal candle on the daily chart. However, the bottom of the recent range still held but will be tested again if we open in that 5770 region.
Needless to say we really have to hold on to that to prevent further capitulation in the near term. There are some positives for the materials plays with gold and iron ore both firmer. ANZ might also continue its run after earnings were well received yesterday. CBA’s Q3 update will also be in focus along with any moves to pass on the RBA rate cut to consumers. CBA has decided to hold on to 5 basis points and passed on 20 bp to its customers. Other stocks in focus will be Woolworths which has a Q3 sales report and TPG which raised its IIN offer.