Market Briefing: Upbeat vibes. Will it last?
Have a look at the latest edition of our Event Radar & Views In A Nutshell pack.
Improved vibe. Turnaround in markets overnight on reports Iran is looking to restart nuclear talks. Equities rose, oil prices eased. AUD & NZD rebounded.
Macro trends. Middle East situation remains fluid. Data wise, US retail sales out tonight. Signs consumer spending is holding up may give the USD a boost.
China pulse. Retail sales in China stronger. Industrial output also expanded. Developments in China are important for AUD's medium-term trend.
Global Trends
Risk sentiment improved overnight. Markets have taken a more sanguine view of the Israel/Iran conflict given the fighting hasn’t spread across the region and because of reports Iran is looking to restart talks over its nuclear program to de-escalate hostilities. In response, after opening higher in yesterday’s Asian session, Brent crude oil prices moderated and are now tracking near ~US$72.60/brl. For all the media hype about ‘spiking oil prices’, in level terms the moves haven’t been that pronounced. Even at yesterday’s ‘peak’ prices were still ~8% lower than where they were this time last year with Brent crude now not that far from its 1-year average.
Elsewhere, global equities rebounded with the US S&P500 rising ~0.9% and the tech-focused NASDAQ outperforming (+1.5%). US bond yields also ticked up ~2-5bps with the relatively bigger increases at the long-end causing the curve to steepen in ‘risk-on’ fashion. In FX, the USD slipped back with EUR (now ~$1.1561) and GBP (now ~$1.3579) edging a bit higher, while the safe-haven JPY lost ground ahead of today’s Bank of Japan meeting. The turnaround in the market mood helped cyclical currencies recover with NZD (now ~$0.6059) and AUD (now ~$0.6525) broadly inline with where they were trading before the events in the Middle East kicked off on Friday.
The Middle East situation remains fluid, and as has been observed over the past few day’s things can turn course quickly. Renewed bouts of headline/event driven and USD supportive turbulence are possible, in our opinion. Macro wise, in addition to today’s BoJ meeting (no set time) where no policy changes are anticipated, US economic trends will also be in focus with the release of retail sales (10:30pm AEST) and industrial production (11:15pm AEST) figures. The consumer is the engine room of the US economy (household spending is ~3/4’s of GDP). Weaker tariff-induced auto sales in the month point to a drop in headline retail sales, however core ‘control group’ spending which excludes some volatile items and plugs straight into US GDP is forecast to recover. If realised, we think the USD (which is tracking below our ‘fair value’ model) could strengthen a little in the near-term. That said, we remain of the view that these short-run adjustments are unlikely to last too long or extend too far with the broader fundamental backdrop set to keep the USD in a longer-term downtrend.
Global event radar: Bank of Japan (Today), US Retail Sales (Tonight), US Fed (Thurs), Bank of England (Thurs), Global PMIs (23rd June), Fed Chair Powell (25th June), US PCE (27th June), China PMIs (30th June), EZ CPI (1st July), Fed Chair Powell (1st July), US Jobs (3rd July)
Trans-Tasman Zone
The turnaround in market sentiment on the back of easing broader Middle East conflict worries supported cyclical assets overnight with US equities and industrial metals such as copper rising (see above). This and a softer USD helped the NZD (now ~$0.6059) and AUD (now ~$0.6525) rebound with both now on par with where they were trading prior to the start of the latest Israel/Iran conflict on Friday. The more upbeat market vibes also helped the AUD bounce back on the major crosses with gains of 0.4-1.0% recorded against EUR, GBP, CAD, CNH, and JPY over the past 24hrs. By contrast, relative outperformance in the NZD has seen AUD/NZD ease a fraction (now ~1.0770).
Also helpful for the AUD, at the margin, was the latest China activity data batch. The figures for May showed an acceleration in annual growth in retail sales in China (now 5%pa YTD) with government purchase subsidies and Labour Day holidays underpinning spending. Elsewhere, industrial output expanded at solid pace and fixed asset investment stabilised. This is the more commodity intensive, and hence AUD relevant, side of China’s economy. Forward indicators such as local government bond issuance point to further strength in these areas over the period ahead as authorities in China look to counteract any tariff-related headwinds across the export sector.
This is a factor we believe should help the AUD edge higher over the next year.
That said, in the near-term, as outlined above, there is a risk of renewed bouts of Middle East headline driven market volatility. The situation remains fluid and ‘glass half-full’ markets may have taken a positive view too quickly. Moreover, we think the incoming US data such as core retail sales (10:30pm AEST) might give the USD a bit of support if the report illustrates resilient consumer spending. On top of that, we feel the US Fed could lean against ‘dovish’ market pricing looking for a couple of interest rate cuts later this year (Thurs morning AEST), while the volatile Australian jobs report (Thurs AEST) may also show softer momentum after the outsized employment gains posted in April.
AUD & NZD event radar: Bank of Japan (Today), US Retail Sales (Tonight), US Fed (Thurs), NZ GDP (Thurs), AU Jobs (Thurs), Bank of England (Thurs), Global PMIs (23rd June), Fed Chair Powell (25th June), AU CPI (25th June), US PCE (27th June), China PMIs (30th June), EZ CPI (1st July), Fed Chair Powell (1st July), US Jobs (3rd July)
AUD levels to watch (support / resistance): 0.6410, 0.6460 / 0.6560, 0.6610
NZD levels to watch (support / resistance): 0.5920, 0.5980 / 0.6110, 0.6150
Market Moves
Peter Dragicevich
Currency Strategist - APAC
Upcoming Events
TUESDAY (17th June)
JPY Bank of Japan Decision (no set time)
JPY BoJ Gov. Ueda Speaks (4:30pm)
EUR Germany ZEW Survey (June) (7pm)
USD Retail Sales (May) (10:30pm)
USD Industrial Production (May) (11:15pm)
WEDNESDAY (18th June)
USD NAHB Housing Index (June) (12am)
EUR ECB’s Villeroy Speaks (1:05am)
EUR ECB’s Centeno Speaks (1:45am)
NZD Consumer Confidence (Q2) (7am)
NZD Current Account (Q1) (8:45am)
JPY Trade Balance (May) (9:50am)
GBP CPI Inflation (May) (4pm)
EUR ECB’s Elderson Speaks (5:30pm)
EUR ECB’s Escriva Speaks (6:45pm)
EUR ECB’s Villeroy Speaks (7:30pm)
EUR ECB’s Knot Speaks (8:15pm)
USD Housing Starts/Building Permits (May) (10:30pm)
USD Initial Jobless Claims (10:30pm)
EUR ECB’s Panetta Speaks (11pm)
THURSDAY (19th June)
EUR ECB’s Nagel & Villeroy Speak (12:30am)
EUR ECB’s Lane Speaks (1am)
USD FOMC Decision (4am)
USD Fed Chair Powell Speaks (4:30am)
NZD GDP (Q1) (8:45am) AUD Jobs Report (May) (11:30am)
EUR ECB President Lagarde Speaks (5:30pm)
EUR ECB’s Nagel Speaks (7pm)
EUR ECB’s Guindos Speaks (7:45pm)
GBP Bank of England Decision (9pm)
FRIDAY (20th June)
JPY CPI Inflation (May) (9:30am)
CNY Loan Prime Rate (1yr/5yr) (11am)
GBP Retail Sales (May) (4pm)
JPY BoJ Gov. Ueda Speaks (4:40pm)
CAD Retail Sales (Apr) (10:30pm)
USD Philly Fed Outlook (June) (10:30pm)
SATURDAY (21st June)
USD Leading Index (May) (12am)
*Note, all times/dates provided are AEST
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