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Global markets were relatively quiet because of the US Independence Day holiday. Little news regarding the US-Sino trade war has so far come to light, leaving European markets to trade off existing themes and regional fundamentals. The DAX and FTSE closed trade -0.3% lower on thin volume, although other indices did manage some gains. The Euro and the Pound managed to creep higher, thanks to a slight pull back in the USD — a dynamic that also supported the technical bounce seen in gold prices this week. The settled conditions currently appear conducive to a recovery in the ASX this morning, with SPI futures currently indicating a 0.3% climb at the open.
The ASX200 gave up the week’s early gains yesterday, falling -0.4% to close the day at 6180. Local shares took their lead from North American equities throughout the day, which were led lower themselves by losses in the tech-space. It was a sea of red across the sector map for the ASX, with telecommunications stocks the only to prise meaningful gains, as that sector continues to recover some of its recent falls. The banks dipped overall, after driving the ASX’s activity earlier in the week, explaining some of the overall index’s troubles. In general, the ASX is beginning to appear as though it is losing some of the momentum that propelled it higher over the last several weeks. Yesterday’s close signifies a break below support at 6190, opening the prospect of a dip back towards the important support level of 6140.
Broader Asian markets have also struggled to hold onto the day prior’s hard-fought gains. The situation was primarily due to the re-inflammation of trade war tensions between the US and China, which weighed on market sentiment again. Hong Kong and Chinese stocks shed over 1%, renewing the bearish activity that has characterized trade in those markets over several weeks. The Nikkei performed better, but still gave up -0.3% throughout the day to extend its overall run of losses. In better news, the Yuan arrested its aggressive sell-off, after confidence returned to Chinese currency following promised from the PBOC Governor that it would not be used as a trade war weapon.
The ABS released two significant pieces of Australian economic data yesterday: Retail Sales figures and Trade Balance data, both for the month of May. On balance and when combined, the data painted a decent picture of the domestic economy, even though neither were seriously tipped to shift fundamentals leading into their release. The headline for the Trade Balance release was underwhelming, revealing that Australia’s trade surplus fell short of the $1.21b expectation, printing at $0.83B instead. However, the details of the data did show some stronger features; namely, that exports expanded by a respectable 0.4%, outpacing imports, which also expanded a decent 0.3%.
Of all data, Retail Sales figures probably held more weight for traders, given the general uneasiness about consumption within the Australian economy. Hampered by the tripartite formed by slow wage growth, high debt levels, and falling property prices, the RBA has led the chorus of concern for the state of the Australian consumer, stating only yesterday that “one continuing source of uncertainty is the outlook for household consumption”. Today’s Retail Sales release (probably temporarily) decompressed these concerns, showing that sales expanded 0.4% last quarter, versus a forecast of 0.3%.
The reaction to the news was naturally best witnessed in the AUD/USD, which has managed to climb by as much as 50pts throughout the day. The currency pair gradually gravitated back towards a familiar downward trendline as trade unfolded, currently sitting at about 0.7380. A rather clear downward channel has emerged over several weeks for the AUD/USD, representing (at present) the 0.7405 on the upside3, and effectively 0.7300 on the downside. The local unit – despite the activity over the last 24 hours – is still predominantly being driven by global themes, especially as they relate to the USD. Look for it to persist, until new themes enter the market and affect trader mentalities.
The public holiday in the US means that we will see a figurative back log of data to end the week. Several releases leap off the calendar for a variety of reasons. Tonight: the weekly print of Crude Oil Inventory data, which takes on an interesting colour given last week’s remarkably low figures, and US President Trump’s vociferous demands for lower prices at the start of this week. Attention will then shift to the release of the minutes for the Fed’s most recent meeting, and will be perused by analysts in search for the central bank’s justification of its very hawkish tone at that meeting. Look for moves in US Treasury Yields on the back off this news, the curve of which has flatted considerably recent, owing in part to 10 Year Treasury Yields falling to 2.83% in recent days.