Compass Global Markets' Blog

Market Update - 19th September 2018 - Markets Rebound After Trade Tariffs In Classic "Sell The Rumour, Buy The News" Scenario

Posted by Patrick Downes on September 19, 2018 at 8:48 AM

Yesterday I noted that when Donald Trump eventually drops tariffs on US$200 billion of Chinese exports it could be a "sell the rumour, BUY the news" type event. And that appears to be precisely what has happened overnight with equities, commodities and the AUD all rallying on robust market sentiment following the CONFIRMATION of new trade tariffs on China.

But what exactly does "sell the rumour, BUY the news" mean?

Basically it means markets hate risk and tend to sell off on any whif of bad news (the rumour); quite often that selling is overly zealous and overdone. In this case rumours of Trump's trade tariffs on Chinese exports over the past six months has seen commodities, equities and the AUD sell off quite substantially as a result of fears about global growth being impacted by these tariffs. That heavy selling over the past 6 months created opportunities which has seen savvy investors BUY undervalued assets when that bad news was eventually delivered yesterday. However we're certainly not yet out of the woods. 

Nonetheless the strong rebound in commodities prices overnight has seen commodities currencies like the Aussie dollar and Canadian dollar to move higher overnight. AUD/USD is looking like moving well into the 0.72's today, while AUD/EUR is back in mid 0.61's. 

Monetary policy minutes released from the RBA yesterday suggest the next move in interest rates will be up rather than down as growth starts to pick up once again, which was highlight by strong GDP figures in the latest quarter. This more hawkish tone from the RBA is also bullish for the AUD and probably suggests we may have seen the worst of the AUD's declines. 

AUD EXCHANGE RATES:

AUD/USD – 0.7199

AUD/GBP – 0.5459

AUD/EUR – 0.6158

AUD/NZD – 1.0930

AUD/JPY – 81.041

USD/BTC – $6,323

OTHER MARKETS: 

All Ords (XAO) – 6,269

Gold – A$1,658/oz

Silver –  A$19.60/oz

WTI – US$69.49/barrel

DATA RELEASES TODAY:

GBP - CPI at 6.30pm

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Topics: Report, Market

Market Update - 18th September 2018 - Trump Could Pull Trigger On Next Round Of China Tariffs

Posted by Patrick Downes on September 18, 2018 at 8:17 AM

No morning market update from me yesterday as there wasn't a great deal to report on other than the same old Trump/China merry go round we've been on since February. Speculation was that Trump's latest round of tariffs on US$200 billion of exports to the U.S could come into effect overnight, however as yet there has been no confirmation that any additional tariffs have gone ahead. The resulting effect of this trade with China since it's debut in February has seen a strengthening in the U.S Dollar (as a safe haven) while crushing commodities prices, emerging markets currencies and the currencies of countries which export commodities such as Canada and Australia. Conceivably the AUD and commodities prices will recover once some finality and end to the trade war occurs. At this stage though, it remains murky at best to determine what if any the end game might look like, however you'd have to think for Trump that end game would be tariffs on ALL of China's exports to the U.S.

The Aussie dollar has held on to gains made late last week but remains at 21 month lows vs. the Greenback and 30 month lows vs. the Euro which is certainly not ideal for importers but is perhaps a new normal that we all need to get used to. While I understand the want and perhaps also the need to chase higher levels before making payments, the reality is that while we might see the mid 0.70's vs. the U.S in the short term don't expect to catch 0.80 any time soon. The same goes with AUD/EUR and AUD/GBP which are both well off recent highs.

Monetary Policy Meeting Minutes from the latest RBA meeting are due out this morning at 11.30am and these will be picked through in detail by market participants looking for a read on the RBA's likely next move in interest rates. Booming GDP figures in the latest quarter is probably what most people will be looking for some RBA feedback on. Other than that, not much else is due this afternoon or overnight.

AUD EXCHANGE RATES:

AUD/USD – 0.7149

AUD/GBP – 0.5425

AUD/EUR – 0.6113

AUD/NZD – 1.0871

AUD/JPY – 80.000

USD/BTC – $6,226

OTHER MARKETS: 

All Ords (XAO) – 6,293

Gold – A$1,673/oz

Silver –  A$19.74/oz

WTI – US$68.51/barrel

DATA RELEASES TODAY:

AUD - Monetary Policy Meeting Minutes

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Topics: Report, Market

Market Update - 14th September 2018 - AUD/USD Makes Further Gains As Commodities & Stocks Rebound

Posted by Patrick Downes on September 14, 2018 at 8:30 AM

U.S and European stock markets rebounded for the most part during overnight trade with the only drag being the FTSE which bucked the trend and finished around 0.4% lower. The best performing stock markets were the NASDAQ in the U.S and Spanish IBEX which finished up 0.75% and 0.24% respectively. Commodities prices also broadly edged higher with Copper and Iron Ore posting good gains as general market sentiment improved on the faint prospects of Trump doing a trade deal with China.

AUD/USD starts the day higher again thanks to the aforementioned bullish run in commodities overnight but also much better than expected jobs numbers which were released yesterday morning at 11.30am. Officially we added 44,000 new jobs which was well above the consensus forecast of 16,500. The ABS however saw no change in the official unemployment rate which for the time being appears anchored to 5.3% - the lowest level in 6 years.

U.S retail sales data is out tonight while we have a bunch of Chinese economic data due around midday. Given China and trade is in the spotlight at this moment you'd probably think the markets will be watching this data closely for any signs of weakness in the Chinese data, which so far has remained unchanged despite all the doom and gloom scenarios from some market participants.

AUD EXCHANGE RATES:

AUD/USD – 0.7161

AUD/GBP – 0.5453

AUD/EUR – 0.6119

AUD/NZD – 1.0903

AUD/JPY – 80.188

USD/BTC – $6,449

OTHER MARKETS: 

All Ords (XAO) – 6,239

Gold – A$1,671/oz

Silver –  A$19.72/oz

WTI – US$68.58/barrel

DATA RELEASES TODAY:

USD - Retail Sales

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Topics: Report, Market

Market Update - 13th September 2018 - U.S Invites China To New Round Of Trade Talks Boosting Markets & The AUD

Posted by Patrick Downes on September 13, 2018 at 9:06 AM

In some positive signs overnight the U.S has invited China to a new round of trade talks aimed at ending any further escalation in their ongoing trade dispute and perhaps also putting to bed the threatened US$200b in tariffs on Chinese exports to the U.S. Suffice to say the world and financial markets more broadly are watching and listening very closely, so much so that even the hint of the new trade talks sent metals prices soaring overnight and with them also commodities currencies including the Canadian Dollar and our own AUD.

AUD was higher against all the majors while AUD/USD had its best session in about a month, managing to add about 100 points or 1 cent since yesterday. Iron ore and copper prices which are perhaps the best barometers of risk sentiment both made solid gains with iron ore and copper up 2.6% and 2.3% respectively.

The AUD is certainly not out of the woods just yet, however the 1 cent surge certainly provides some relief to long suffering importers but also an opportunity to make USD payments today if required.

Ahead today we have Aussie employment data at 11.30am followed by the Bank of England's decision on interest rates around 9.00pm tonight AEST. Employment data out this morning is probably the biggest catalyst for any move in AUD today.

AUD EXCHANGE RATES:

AUD/USD – 0.7143

AUD/GBP – 0.5465

AUD/EUR – 0.6136

AUD/NZD – 1.0900

AUD/JPY – 79.471

USD/BTC – $6,298

OTHER MARKETS: 

All Ords (XAO) – 6,283

Gold – A$1,681/oz

Silver –  A$19.88/oz

WTI – US$70.00/barrel

DATA RELEASES TODAY:

AUD – Employment Change & Unemployment Rate at 11.30am

GBP - Official Bank Rate & Monetary Policy Summary at 9.00pm

USD - CPI at 10.30pm

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Topics: Report, Market

Market Update - 11th September 2018 - AUD/USD Grinds Higher With Equities, Commodities Still Battling

Posted by Patrick Downes on September 11, 2018 at 8:45 AM

AUD/USD starts the trading day marginally higher than yesterday, while AUD/GBP and AUD/EUR fell as better economic data out of the U.K supported the Pound and by association also the Euro. U.S & European equities were also buoyed by the generally better sentiment across markets overnight managing to finish Monday mostly in the green. The tech-heavy Nasdaq was the best performer in the U.S while the Euro Stoxx 50 was up by nearly 0.5% at the close.

Base metal prices remain somewhat on the nose with Zinc, Copper, Nickel and Iron Ore all back at late 2016 levels having wiped out all the gains made during 2017 in the early part of this year. However looking at demand and supply fundamentals for these base metals and you see a common thread - tightening supply (as a result of low incentive prices) and still growing demand as coordinated growth across the globe continues. Hard to think of this recent commodities and AUD sell-off as anything but a knee jerk reaction to trade fears. China interestingly still posted higher than expected CPI numbers yesterday while last week their trade balance figures showed "exports and imports grew faster than expected in yuan terms last month, showing both domestic and international demand continue to rise despite worsening relations with the U.S. Exports rose 7.9 percent in August in yuan terms."

NAB business confidence numbers out this morning followed by UK earnings at 6.30pm this evening. NAB business confidence will be the most interesting here given business confidence is a leading indicator of future economic expansion. Business confidence has been rising since early 2016 but more recently that confidence has plateaued. Interesting to see what/if any the impact of a new PM has had on business confidence and the recent escalation of trade tensions between Trump and China.

AUD EXCHANGE RATES:

AUD/USD – 0.7082

AUD/GBP – 0.5430

AUD/EUR – 0.6100

AUD/NZD – 1.0874

AUD/JPY – 78.756

USD/BTC – $6,261

OTHER MARKETS: 

All Ords (XAO) – 6,249

Gold – A$1,680/oz

Silver –  A$19.93/oz

WTI – US$67.47/barrel

DATA RELEASES TODAY:

AUD - NAB Business Confidence at 11.30am

GBP – Average Earnings Index 3m/y at 6.30pm

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Market Update - 10th September 2018 - Sell Off Continues As Trump Threatens All Chinese Imports With Tariffs

Posted by Patrick Downes on September 10, 2018 at 8:40 AM

Another poor finish to the week for almost all assets classes as commodities, equities and the AUD all fell. The only bright spot being the German and French stock markets which managed to buck the trend and finish marginally higher at the close on Friday evening. Trump doubled down on his threats to impose tariffs on ALL Chinese imports which has only created further instability in markets and resulted in further risk off selling almost across the board.

The AUD is back below 0.7100 for the first time since early 2016 and may head lower still if Trump goes through with further U.S tariffs on Chinese goods. Forecasts and opinions on where the AUD will be in 12 months remain very much divided with some forecasters expecting the AUD to be higher in 12 months, while others think  the high 0.60's to low 0.70's more likely. The truth as they say is probably somewhere in-between.

On a bright note the Australian economy released GDP figures on Wednesday and the data was good with the economy growing at 0.9% or 3.6% annualised. The GDP figures were certainly a surprise but do show that low interest rates and government fiscal policy is helping to stimulate growth. Should we see continued GDP growth in the vicinity of 3-3.5% then you'd have to expect interest rates will go higher at some point in 2019.

Ahead tonight is U.K GDP and Manufacturing Production numbers. Both are out around 6.30pm this evening and expected to come in pretty flat at 0.2% month on month. Given the low forecast we could see a bounce in the GDP and fall in AUD/GBP if the estimates are well beaten.

AUD EXCHANGE RATES:

AUD/USD – 0.7079

AUD/GBP – 0.5470

AUD/EUR – 0.6121

AUD/NZD – 1.0847

AUD/JPY – 78.643

USD/BTC – $6,255

OTHER MARKETS: 

All Ords (XAO) – 6,252

Gold – A$1,682/oz

Silver –  A$19.93/oz

WTI – US$67.71/barrel

DATA RELEASES TODAY:

GBP - GDP & Manufacturing Production at 6.30pm

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Topics: Report, Market

Market Update - 5th September 2018 - Commodities & Equities Decline Along With AUD Despite Positive RBA

Posted by Patrick Downes on September 5, 2018 at 8:37 AM

I feel like I've said it alot and that's because I probably have....but the RBA decided to keep rates on hold once again at 1.5% which marks the 23rd meeting in a row in which the RBA have done absolutely nothing. So how did the Aussie Dollar react yesterday? Well AUD initially rallied as the accompanying rate statement appeared a little more bullish on the Australian economy as the RBA forecast "growth of the Australian economy to average a bit above 3 per cent in 2018 and 2019" while noting that "in the first half of 2018, the economy is estimated to have grown at an above-trend rate." All generally good signs that growth and inflation are growing, however the once continuing concern was the rapidly deteriorating housing market. How this play's out remains to be seen, but at this point it doesn't look great for property in the short to medium term.

The late afternoon saw a resumption of risk-off as commodities markets, the AUD and stocks started to falter and post declines. European equities had a shocker overnight finishing down by as much as 1.3%, while commodities were led lower by bellwether Copper which lost 1.7% and extended losses to a fifth straight day. The AUD is down marginally from yesterday. Overall, markets remain very jittery as Trump continues with trade war rhetoric and a generally abrasive approach to traditional economic allies.

Local GDP data is out this morning at 11.30am with the market expecting to see 0.7% growth in GDP for the latest quarter.

AUD EXCHANGE RATES:

AUD/USD – 0.7149

AUD/GBP – 0.5553

AUD/EUR – 0.6167

AUD/NZD – 1.0920

AUD/JPY – 79.720

USD/BTC – $7,332

OTHER MARKETS: 

All Ords (XAO) – 6,398

Gold – A$1,660/oz

Silver –  A$19.73/oz

WTI – US$69.24/barrel

DATA RELEASES TODAY:

AUD – GDP at 11.30am

GBP - Services PMI at 6.30pm

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Market Update - 4th September 2018 - AUD Makes Small Gains Ahead Of RBA Rate Decision At 2.30PM

Posted by Patrick Downes on September 4, 2018 at 9:24 AM

Thankfully for importers, the Aussie Dollar has made some gains overnight.

Albeit small gains it is a step in the right direction following a pretty severe late winter sell off. The AUD finished up around 1/2 to 3/4 of one percent vs the Greenback, Pound, Euro, Kiwi and Japanese Yen. Interestingly Bitcoin has been on the rise over the past fortnight and is now trading around US$7,200 per Bitcoin; for those interested it appears to have a ton of support every time it hits around US$5,800-US$5,900. Not advice to buy, just an observation!

Retail sales and ANZ jobs ads came in flat and negative respectively yesterday morning while company operating profits rose by 2% for the latest quarterly reading. The data had little impact on the AUD, however retail stocks like Harvey Norman and Myer fell on the ASX as investors feared retail may be truly dead. However as with all things retail is simply a cyclical market with peaks and troughs and not dissimilar to the commodities market, property  market and everything else.

We have the all important cash rate decision today at 2.30pm, however don't expect any move on rates from their current level of 1.5%. The RBA has had interest rates stuck at 1.5% since August of 2016 and for all intents and purposes it looks unlikely to change from these levels for the foreseeable future as a result of Trump's trade war with China, slow wages growth and a weak retail sales and housing market. Most forecasters aren't predicting a move until sometime next year, however for mortgage holders don't think this doesn't mean rates aren't heading higher...Westpac proved this during last week with a 0.14% rate hike and the other banks are likely to follow this week or next. Funding costs are after all heading higher for the banks as interest rates move higher from historic lows in Europe and the U.S where they get a large chunk of their liquidity.

AUD EXCHANGE RATES:

AUD/USD – 0.7181

AUD/GBP – 0.5570

AUD/EUR – 0.6176

AUD/NZD – 1.0892

AUD/JPY – 79.816

USD/BTC – $7,263

OTHER MARKETS: 

All Ords (XAO) – 6,416

Gold – A$1,665/oz

Silver –  A$20.11/oz

WTI – US$69.84/barrel

DATA RELEASES TODAY:

AUD – RBA Cash Rate at 2.30pm

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Market Update - 3rd September 2018 - Spring Is Here, But AUD Certainly Not Feeling The Spring Vibes

Posted by Patrick Downes on September 3, 2018 at 8:40 AM

The Aussie Dollar slide has unfortunately continued unabated over the weekend, with falls seen across the board as a result of renewed fears trade tariffs are taking their toll on the global economy's prospects. European equities and commodities also performed poorly in the last session of trade on Friday evening, while U.S markets finished the week mixed.

Aussie economic data this morning could provide some impetus for an AUD rebound today. Data out includes retail sales, company operating profits and ANZ jobs ads - all out at 11.30am this morning. Expectations are for retail sales growth to remain weak but still positive, with 0.3% growth forecast for the month. Quarterly company operating profits should also remain positive - economists are estimating 1.4% growth in quarterly profits.

A broader look at things and we see the same macro economic factors playing out which include the Trump/China trade war, the U.S Federal Reserves next move on interest rates, weaker commodities prices and generally lower risk sentiment/tolerance at the moment. Some finality with respect to Trump' incessant call for trade wars should provide a welcome relief to market, but/if when this happens is anyone's guess.

AUD EXCHANGE RATES:

AUD/USD – 0.7161

AUD/GBP – 0.5531

AUD/EUR – 0.6166

AUD/NZD – 1.0851

AUD/JPY – 79.614

USD/BTC – $7,251

OTHER MARKETS: 

All Ords (XAO) – 6,427

Gold – A$1,669/oz

Silver –  A$20.21/oz

WTI – US$69.72/barrel

DATA RELEASES TODAY:

AUD - Retail Sales and ANZ Job Ads at 11.30am

GBP - Manufacturing PMI at 6.30pm

USD & CAD - Bank Holidays (expect payment delays of one day)

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Topics: Report, Market

Market Update - 31st August 2018 - AUD, Commodities & Equities Take A Hit As More China Tariffs Loom

Posted by Patrick Downes on August 31, 2018 at 8:21 AM

The AUD has taken another dip overnight as geopolitical concerns caused widespread selloffs across commodities, stocks and risk assets more broadly. Specifically, it appears as though Trump is planning to go ahead with US$200 billion in tariffs on Chinese imports as early as next week, which is more than likely to see China retaliate with in kind tariffs. Trade war escalation helps no one and as a result U.S & European equities finished lower with the DOW and German DAX taking the biggest hits down around half a percent in overnight trade. The AUD is lower by around half a percent as fears the Trump Tariffs will impact Chinese growth.

So what can I say in relation to all of this and the AUD?

Well, first of all markets typically over-react on fears and it's not really surprising to see a commodities/AUD sell off overnight following news of more tariffs - we've been here before. However global growth is still happening around the world including in China - our largest trading partner. Additionally our commodities, iron ore, copper and more recently lithium will continue to be sold to China as they develop their infrastructure, electric vehicles market and build the bridges, rail lines, ports and highways that make up the One Belt, One Road gigantic infrastructure project. All of this is supportive of the AUD in the long term. I'll leave at that, have a great weekend!

AUD EXCHANGE RATES:

AUD/USD – 0.7235

AUD/GBP – 0.5552

AUD/EUR – 0.6197

AUD/NZD – 1.0881

AUD/JPY – 80.461

USD/BTC – $6,924

OTHER MARKETS: 

All Ords (XAO) – 6,460

Gold – A$1,651/oz

Silver –  A$20.02/oz

WTI – US$69.87/barrel

DATA RELEASES TODAY:

No economic data today.

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Topics: Report, Market

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