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10/06/21 10:53
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Australia's six-quarter economic growth may slow in Q1 2023, prompting speculation of RBA rate hike pause. Markets watch RBA guidance, household spending, net exports, and AUD/USD trends. Source: Bloomberg Forex Economic growth GDP AUD/USD Export Australia Tony Sycamore | Market Analyst, Australia | Publication date: Monday 05 June 2023 On Wednesday at 11:30 am, the Australian Q1 2023 GDP is poised for a decline. In the December quarter (Q4) of 2022, Australia's economic growth rose by 0.5% QoQ or 2.7% YoY, slowing down from 5.9% YoY in the September quarter (Q3). Net trade (due to increased exports and fall in imports) and consumption primarily drove the GDP growth in the December quarter. Expectations for Q1 2023 For Q1 2023, GDP is expected to rise by 0.3% QoQ or 2.5% YoY. Although this would mark a sixth consecutive quarter of economic expansion, it would also denote the slowest pace since the 2% fall in the September quarter of 2021. The expectations range significantly, from -0.2% to +0.5%. As articulated in the Statement of Monetary Policy in May, the RBA anticipates slower growth as it endeavours to control inflation and balance the labour market via higher interest rates. A dive into the details Household spending, driven by robust services consumption including hotels, cafes, restaurants, and transport services, is projected to contribute positively to the growth. The household saving ratio, which dropped from 7.1% to 4.5% in Q4, is forecasted to decline further as household spending exceeds growth in disposable income, thereby prompting consumers to utilise their savings to offset the cost of living and mortgage pressures. Net exports, which surged by 1.1% in Q4, are anticipated to detract -0.5% percentage points from growth in Q1 2023 due to softer commodity prices and weaker volumes. In Q4, Australia's Terms of Trade rose 0.6% as growth in export prices outpaced import prices. Since then, Australia’s Terms of Trade have turned lower, which suggests a flat outcome is likely in Q1. GDP growth rate YoY Source: TradingEconomics Impact on markets The release of Q1 2023 GDP just a day after the RBA's June Board meeting means that markets are likely to prioritise understanding the implications of the RBA's forward-looking guidance rather than a retrospective GDP print. That said, a GDP of 0.5% QoQ or higher would amplify expectations of further RBA rate hikes, supporting the AUD/USD while posing risks to the ASX 200. Conversely, a GDP of 0.1% QoQ or less would fuel speculation that the RBA has concluded its rate hiking cycle and is ready for an extended pause. Forecast for the AUD/USD The AUD/USD concluded last week higher at .6607 (1.34%), bolstered by stronger commodity prices and upside surprises in the monthly CPI indicator and wage increase at the Fair Work Commissions Review. This suggests the RBA may implement another rate hike, if not in June, then possibly in July. In technical terms, the AUD/USD's close back above .6565 (range lows) currently mitigates the downside risks that followed the sell-off in late May. On the upside, resistance from the 200-day moving average is seen at .6700c, ahead of a solid resistance barrier from range highs at .6800/20c. On the downside, a break of support at .6565 and then of the May 31st .6458 low would put the support at .6350 on the market's radar. AUD/USD daily chart Source: TradingView TradingView: the figures stated are as of June 5, 2023. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation. -
Following a pivotal week for US equities marked by Congressional moves and robust employment data, market focus shifts to central bank meetings and impending data releases. Source: Bloomberg Indices Shares Dow Jones Industrial Average S&P 500 Nasdaq United States Tony Sycamore | Market Analyst, Australia | Publication date: Monday 05 June 2023 US equity indices roared into overdrive as last week drew to a close, turbocharged by the passage of the Fiscal Responsibility Act in Congress, an outperforming non-farm payrolls report, and the anticipated stimulus measures in China. Confirming the resilience of the US economy, non-Farm payrolls rose by 339k in May vs 195k expected. Providing a "Goldilocks" element, the unemployment rate rose to 3.7% from 3.4%, its highest level since October, while Average hourly earnings ticked down to 4.3% YoY from 4.4%. The jobs report did little to change the pricing for the June FOMC meeting, which closed at around 7bp or 30%. However, the July meeting is now 50% priced for a rate hike into the 5.25-5.50% range. This week, the market will focus on two central bank meetings (The RBA and BoC) for possible clues as to whether the FOMC will hike rates or pause its rate-hiking cycle in June. Also of interest will be the US May ISM services report (Tuesday, June 06 at 12.00 am AEST) which, along with next week's inflation report, will be the last major data release before the June FOMC meeting on June 15. ISM: expectations and implications In April, the ISM services increased to 51.9 from 51.2 in March, highlighting the divergence between the soggy manufacturing and resilient services sectors. Behind the solid number was an increase in new orders (56.1 vs 52.2) and new export orders (60.9 vs 43.7). In May, the market is looking for the ISM services to increase to 52.4 for a fifth consecutive month of growth in the services sector. S&P 500 technical analysis Following its explosive rally on Friday, the S&P500 has followed the road map nicely to be eying the August 4327.50 high - from last week's update here. "Presuming the S&P 500 can hold above range highs 4210/4185 (closing basis), allow for the S&P 500 to rally initially towards the August 4327.50 high". Should the S&P 500 move above 4327.50, the next significant resistance level is not until 4500/50. On the downside, strong support is viewed near old highs of 4210/00. Aware that a break and daily close below support at 4185/4175ish would indicate that last week's break higher has failed. S&P 500 daily chart Source: TradingView Nasdaq technical analysis As we noted last week, during the dot com bubble of the late '90s and many others since, when animal spirits take hold, rallies can extend further than expected.\, such was the case last week with a new 52-week high. We expect AI mania to remain a driver of the Nasdaq in the months ahead, with the technology still too early in its lifecycle to disappoint relative to expectations. Pullbacks in AI-related tech stocks and the Nasdaq will likely be met by buyers looking to position for the next leg higher towards the 15,268 high of March 2022. Nasdaq daily chart Source: TradingView Dow Jones technical analysis After its strong rally on Friday, the Dow Jones has broken (again) above downtrend resistance from the bull market 36,952 high. However, before getting carried away there is still much wood to chop. The Dow Jones needs to break above the May 34,257 high, the 34,342 year-to-date high and the December 34,712 high to claim to set up a test of the 35,492 high from April 2022 before the all-time 36,952 high. On the downside, the Dow Jones continues to find good support coming from the 200-day moving average, currently at 32,762. Dow Jones daily chart Source: TradingView TradingView: the figures stated are as of June 5, 2023. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.
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Crude oil leapt to higher ground after the OPEC+ declared a production cut; he June OPEC+ meeting delivered a price reaction that had been foretold and the US dollar might weigh on oil if it keeps climbing. Source: Bloomberg Shares Commodities OPEC Petroleum Federal Open Market Committee Federal Reserve Daniel McCarthy | Strategist, | Publication date: Monday 05 June 2023 Crude oil opened at a five-week high on Monday after OPEC+ announced a reduction in the output target over the weekend that will take effect from the 1st of July. The decision at the Vienna gathering of the Organisation of Petroleum Exporting Countries (OPEC+) comes after a similar move back in April that saw black gold race to a 6-month peak. After that run-up, it collapsed to an 18-month low at the start of last month ahead of last weekend’s conclave. The price action so far today has been somewhat similar with an initial rally of over 4% from Friday’s close before giving up most of those gains. Within OPEC+, Saudi Arabia will do most of the heavy lifting, lowering their production by a million barrels per day. This puts the largest oil-exporting nation at around 9 million barrels per day, down from circa 10.5 million barrels per day before the April cuts. Russian production targets were left unchanged, and the United Arab Emirates (UAE) gained permission to add slightly while some African nations saw modest cuts and their output will be monitored. The move had been telegraphed to some extent by the Saudi Arabia Minister of Energy Abdulaziz bin Salman. Two weeks ago, he said, “speculators, like in any market, they are there to stay. I keep advising that they will be ouching. They did ouch in April. I don’t have to show my card, I’m not [a] poker player… but I would just tell them, watch out.” The US dollar is also stronger to start the week after mixed jobs data on Friday that saw 339k jobs added in May according to the non-farm payrolls data. This beat the 195k anticipated and there was also an upward revision to the April figure to 295k from 253k. However, the unemployment rate ticked up to 3.7% from 3.4% prior and above the 3.5% forecast. There had been some commentary from a number of Fed speakers last week hinting that the bank might ‘skip’ a hike at the June 14th Federal Open Market Committee (FOMC) meeting. We are now in the blackout period for committee members to be making public statements about policy until after the gathering. Without further guidance on Fed thinking, uncertainty and speculation might see a tick-up in volatility across markets, including oil prices. WTI crude oil chart Source: TradingView This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
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