Chris Weston, Chief Market Strategist at IG Markets
It has been a fairly busy day in Asia, with investors focusing on Australian jobs and China trade balance data. These two key readings put commodity currencies in focus, particularly the AUD which has seen some big moves this morning. Australian jobs numbers for April showed a 14,200 (versus 8800 expected) surge in jobs added, while the unemployment rate was steady at 5.8%. The market was expecting unemployment to tick higher to 5.9% and considering participation also remained steady at 64.7, then today’s number was indeed a positive outcome. Even more encouraging was the fact that all the jobs added were full-time jobs, unlike previous months when we’ve seen part-time employment dominating.
This is a really good sign of confidence and perhaps a comment in the RBA’s statement suggesting it’s seeing an improvement in indicators for the labour market was a good hint. Wage growth will remain a concern, but at least it will limit price growth for now. The question now will be what sort of impact it will have on rate expectations. While I don’t feel this is enough to see the RBA change its neutral stance just yet given the weak global backdrop, some analysts feel this data points to a Q4 rate hike. This data drew a positive reaction from AUD/USD, which rallied to test Tuesday’s highs in the 0.937 region. Tomorrow’s statement on monetary policy might contain comments regarding unemployment rate forecasts and this will be closely watched.
AUD extends gains on China
AUD/USD managed to extend its gains when China data was released. There was no exact time for the release of the data and this gave rise to a ‘leak’ which proved to be inaccurate in the end. Regardless, the data was very strong with the surplus coming in at $18.46 billion, much better than the expected $16.7 billion. Exports and imports were also ahead of consensus and actually showed some growth. While the data didn’t shoot the lights out, it showed signs of a recovery and that’s been enough to encourage some buying today. Equities are firmer across the region along with some of the commodity currencies. AUD/USD is at its highest in two weeks with 0.94 in its sights. We could see this level challenged as early as tomorrow, when the RBA statement on monetary policy is released. The next key hurdle will be 0.946, the April 10 high.
Europe eyeing central banks
Looking ahead to European trade, the major bourses are pointing to a positive start after a mixed performance yesterday. Attention will be pinned on the single currency with the ECB set to hit the wires along with the BoE. While the BoE is likely to be a non-event, the ECB is likely to see some big moves in the euro. The fact that EUR/USD has held a tight range over the past 24-hours or so is perhaps a sign of uncertainty among traders. Not even the developments on the Russia front were enough to cause big moves in EUR/USD.
There are some interesting trends emerging in the crosses at the moment, with EUR/JPY looking very interesting. For some reason the simple 120-day moving average (now at 141.08) has acted as major support for the pair for the last two years and it seems this average is key for technical traders. Certainly those who are long would prefer the safe haven trade to continue unwinding on downgraded Russia concerns and for the ECB to hold off on stimulus. EUR/GBP is also very interesting and currently testing support in the 0.82 region. Most analysts feel the ECB will remain dovish and keep its options open on the stimulus front.
(EUR/JPY holding support)
NAB reverses highs after early slump
The ASX 200 was quite resilient today and managed to add on to the gains from the open. While most of the resource names recovered, it was the banks that really stole the show on the back of its first-half results. Analysts were quite split on the result, but the price action wasn’t too surprising given NAB along with the other banks had lost quite some ground heading into the result. It turned out to be a sell the rumour, buy the fact affair resulting on NAB outperforming its peers.
The headline numbers for NAB were actually pretty reasonable with the cash earnings and dividend both coming in ahead of expectations. However, analysts felt the result was low quality compositionally compared to its peers Westpac and ANZ. Net interest margins were squeezed, but perhaps NAB will benefit down the road if this converts into market share. On a PE basis, NAB is also trading at a discount of around 8% to its peers, which leaves it plenty of room to play catch up. There is an uptrend line which comes in at around $33.50 and this has to hold in the near term to keep the recovery going.
FYI, on Saturday May 17 Evan Lucas and I will be in Sydney giving a free seminar designed to help traders and investors understand why central banks are so important to determining the direction of global markets, and will give you the tools and strategies to take advantage of market movements using CFDs across a wide range of assets including shares, forex, indices and commodities. If you’re interested you can register here.