by Nicholas Cork
A sense of deja vu as AUDUSD opens at the same level as last Monday near 0.7175, albeit without the OECD domestic housing warnings of last week, but with cracks appearing in Chinese data and Draghi’s risks’ starting to realise in Europe, a similar negativity sets the tone this morning. Not aiding sentiment today is that the DOW closed the NY session more than 10% lower than its recent highs, which puts it technically into a ‘correction’, and the S&P 500 Financial Index is down more than 20% from its January highs, confirming it is in a bear market. The news from Johnson and Johnson helped equities to their weak close – baby powder / asbestos, what a combo.
The USD briefly touched 2018 highs on Friday as US Retail Sales printed a strong number ahead of FOMC this week, but also note USD may stay in demand as funding concerns start to build. A report out on Friday suggests that non-US banks have amassed USD denominated labilities as large as pre-GFC, and I can recall overnight USD being paid at 10%/20% during that last funding squeeze.
Although it seems several significant concessions have been made from China to the US on Trade, the impact on the Chinese economy is already causing concern and the market now frets more about global growth. Equities falling into correction will also increase the fretting, and Brexit seems to have fallen into the too-hard basket for now. Also note the recent benefit seen to the AUD from these Trade concession breakthrough statements appears to have faded.
AUD still within last weeks’ 0.7150/0.7250 band, more negativity may open up the years lows.
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