Quarterly Outlook
Equity outlook: The high cost of global fragmentation for US portfolios
Charu Chanana
Chief Investment Strategist
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AUD plunges despite mixed jobs report
John J. Hardy
Global Head of Macro Strategy
Summary: Australia’s May employment report was widely declared a stinker, but looked mixed at worst from where we sit. Nonetheless, AUD is probing lower as RBA cut expectations rise anew.
Australia’s jobs report was widely declared a stinker, as the unemployment rate stayed at 5.2% rather than the expected 0.1% drop and the solid jobs growth was almost entirely down to part time payrolls growth. Still, the steady unemployment rate is the product of the good news that the participation rate rose 0.1% and the choppy payrolls data series has registered two strongly positive headline reads in a row – usually there is a good deal of month-to-month mean reversion.
If the last phenomenon repeats historical patterns, we could arguably be in for an ugly June data set. AUD is weaker and EURAUD has looked above its highest daily close since late 2009.
Boris Johnson looks a lock to take leadership of the Conservative party in the UK and thus become the next prime minister; nothing is 100%, but as the winnowing of the Conservative candidates proceeds from here, we’ll clearly end with Boris versus a centrist candidate.
Didn’t we already try that approach with the hapless Theresa May? I will offer my thoughts on Brexit from here in a piece that should be out tomorrow, so look out for that. I am beginning to transition to a more constructive long-term view on sterling if the situation plays out as it should, meaning that cooler heads prevailed and that we get a “managed Brexit” with the adults in the room keeping terms reasonable and the process civil. There is plenty of room for two-way action in sterling over the next few months.
Today we’ll be watching the Swiss National Bank for how pointed its comments are on the intent to maintain a ceiling on the CHF after EURCHF recently touched below the 1.1200 area. The weekly sight deposit data has picked up marginally since the beginning of the year, but not enough to suggest any intervention thus far.
The interest in the weekly US jobless claims reports, the latest out today, may continue to pick up from here as confirmation or not that the US labor market is weakening after that weak May cycle in the Nonfarm payrolls. That data series has put in a kind of low, but hasn’t shown persistent signs of a deterioration yet.
Chart: AUDUSD
AUDUSD is poking back toward the lows after the clear resistance area at 0.7000 survived following a bit of stress-testing. The obvious next test is the cycle low – and lowest daily close of the year – precisely matching the lowest low in early 2016 near 0.6870.
Trading interest
The stop levels for USD longs via AUDUSD (>0.7025), NZDUSD (>0.6700) and GBPUSD (>1.2775) last mentioned a few days ago have all survived, and USD longs may look to tighten risk here to below the recent highs in all of these pairs.
A developing story that looks a bit worrisome is the US Navy reporting that two tankers off Oman are “damaged” and that one of the ship’s operators claims it was attacked. As of this writing, oil had fallen back a dollar from the initial, $2.50/barrel spike on the news.
If the last phenomenon repeats historical patterns, we could arguably be in for an ugly June data set. AUD is weaker and EURAUD has looked above its highest daily close since late 2009.
Boris Johnson looks a lock to take leadership of the Conservative party in the UK and thus become the next prime minister; nothing is 100%, but as the winnowing of the Conservative candidates proceeds from here, we’ll clearly end with Boris versus a centrist candidate.
Didn’t we already try that approach with the hapless Theresa May? I will offer my thoughts on Brexit from here in a piece that should be out tomorrow, so look out for that. I am beginning to transition to a more constructive long-term view on sterling if the situation plays out as it should, meaning that cooler heads prevailed and that we get a “managed Brexit” with the adults in the room keeping terms reasonable and the process civil. There is plenty of room for two-way action in sterling over the next few months.
Today we’ll be watching the Swiss National Bank for how pointed its comments are on the intent to maintain a ceiling on the CHF after EURCHF recently touched below the 1.1200 area. The weekly sight deposit data has picked up marginally since the beginning of the year, but not enough to suggest any intervention thus far.
The interest in the weekly US jobless claims reports, the latest out today, may continue to pick up from here as confirmation or not that the US labor market is weakening after that weak May cycle in the Nonfarm payrolls. That data series has put in a kind of low, but hasn’t shown persistent signs of a deterioration yet.
Chart: AUDUSD
AUDUSD is poking back toward the lows after the clear resistance area at 0.7000 survived following a bit of stress-testing. The obvious next test is the cycle low – and lowest daily close of the year – precisely matching the lowest low in early 2016 near 0.6870.
Trading interest
The stop levels for USD longs via AUDUSD (>0.7025), NZDUSD (>0.6700) and GBPUSD (>1.2775) last mentioned a few days ago have all survived, and USD longs may look to tighten risk here to below the recent highs in all of these pairs.
A developing story that looks a bit worrisome is the US Navy reporting that two tankers off Oman are “damaged” and that one of the ship’s operators claims it was attacked. As of this writing, oil had fallen back a dollar from the initial, $2.50/barrel spike on the news.
The G10 rundown
USD – no real broad signal here as we await next Wednesday’s Federal Open Market Committee meeting and how the market absorbs the latest guidance. We can only observe that it is remarkable that the USD is still up here despite the market pricing almost three rate cuts by the December FOMC meeting.
EUR – the euro resilient in the crosses – hard to find drivers for a significant rally outside of other currencies looking worse as the European Central Bank is at rock-bottom on rates; 200-day moving average in EURUSD at 1.1362.
JPY – the yen will likely continue to track the US long-end treasury market – both USDJPY and US Treasuries holding their breath here.
GBP – the controversial Boris Johnson looks set to become the UK’s next leader on July 22. Yesterday, a Labour motion that would see Parliament taking control to avoid a hard Brexit was voted down and sterling is on its back foot this morning. More to come on this in days ahead.
CHF – EURCHF pulls back this morning as the SNB announces new “policy rate” rather than Libor target (no impact) and largely recycled its rhetoric on defense against the “highly valued” CHF. Inflation forecasts for 2019-21 all raised if rather slightly. This suggests little immediate urgency on CHF levels, so if risk sentiment weakens and yields continue lower, the market may stress-test the cycle lows in EURCHF again and aim toward the 1.1000 level next.
AUD – weak across the board, led by new AUD lows in AUDJPY and EURAUD and perhaps soon by AUDUSD if USD bulls can find inspiration.
CAD – the oil bounceback supporting CAD this morning. The recent slide in USDCAD will take some doing to reverse. Note that AUDCAD is eyeing an interesting area here soon as 0.9126 (versus current 0.9205) is the lowest weekly close since 2010.
NZD – House sales data up tonight from New Zealand as we continue to look for NZD-negative catalysts.
SEK – Swedish rates are tumbling, with the 2-year government yield sliding to a new cycle low of -62 basis points after trading above -40 bps as recently as March. The 10-year yield in Sweden? Four basis points. EURSEK trading mid range.
NOK – NOK traders caught between weak oil prices and a strong Region survey as we await Norges bank guidance next week. Thee 9.85 area in EURNOK is the area where NOK longs start to suffer if we test higher.
Upcoming Economic Calendar Highlights (all times GMT)
09:00 – Euro Zone Apr. Industrial Production
12:30 – US Weekly Initial Jobless Claims
21:00 – New Zealand May REINZ House Sales
USD – no real broad signal here as we await next Wednesday’s Federal Open Market Committee meeting and how the market absorbs the latest guidance. We can only observe that it is remarkable that the USD is still up here despite the market pricing almost three rate cuts by the December FOMC meeting.
EUR – the euro resilient in the crosses – hard to find drivers for a significant rally outside of other currencies looking worse as the European Central Bank is at rock-bottom on rates; 200-day moving average in EURUSD at 1.1362.
JPY – the yen will likely continue to track the US long-end treasury market – both USDJPY and US Treasuries holding their breath here.
GBP – the controversial Boris Johnson looks set to become the UK’s next leader on July 22. Yesterday, a Labour motion that would see Parliament taking control to avoid a hard Brexit was voted down and sterling is on its back foot this morning. More to come on this in days ahead.
CHF – EURCHF pulls back this morning as the SNB announces new “policy rate” rather than Libor target (no impact) and largely recycled its rhetoric on defense against the “highly valued” CHF. Inflation forecasts for 2019-21 all raised if rather slightly. This suggests little immediate urgency on CHF levels, so if risk sentiment weakens and yields continue lower, the market may stress-test the cycle lows in EURCHF again and aim toward the 1.1000 level next.
AUD – weak across the board, led by new AUD lows in AUDJPY and EURAUD and perhaps soon by AUDUSD if USD bulls can find inspiration.
CAD – the oil bounceback supporting CAD this morning. The recent slide in USDCAD will take some doing to reverse. Note that AUDCAD is eyeing an interesting area here soon as 0.9126 (versus current 0.9205) is the lowest weekly close since 2010.
NZD – House sales data up tonight from New Zealand as we continue to look for NZD-negative catalysts.
SEK – Swedish rates are tumbling, with the 2-year government yield sliding to a new cycle low of -62 basis points after trading above -40 bps as recently as March. The 10-year yield in Sweden? Four basis points. EURSEK trading mid range.
NOK – NOK traders caught between weak oil prices and a strong Region survey as we await Norges bank guidance next week. Thee 9.85 area in EURNOK is the area where NOK longs start to suffer if we test higher.
Upcoming Economic Calendar Highlights (all times GMT)
09:00 – Euro Zone Apr. Industrial Production
12:30 – US Weekly Initial Jobless Claims
21:00 – New Zealand May REINZ House Sales
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