Summary:

• US indices ended the day with decent gains despite earlier heavy losses
• SP500 (US500 on xStation5) bounces back from its relevant long-term support line
• Australian dollar trades lower even as the macroeconomic data surprised to the upside

There was an amazing turnaround on Wall Street yesterday as the major indices managed to erase all their post-China announcement losses and ended the day markedly higher. Let us point that the SP500 (US500) was already trading 1.6% lower on the day but it was able to close 1.2% higher marking the 26th move above 1% this year. Rises were fairly widespread and the sole sector which subtracted a bit from the index was energy (-0.14%). Among leaders there were consumer discretionary, consumer staples, health care, IT, telecommunication services as well as real estate. When the dust following the Chinese tariffs settled the US bond yields got a boost as well pushing the 10Y yield from below 2.75% as high as 2.81%, and one may suspect that yields globally should continue marching higher on the back of rebuilding inflationary pressures unless a trade war between the US and China becomes much more severe resulting in deeper tariffs instead of negotiations. As for now it looks like China is more prone to begin talking about a possible trade agreement which would soothe concerns about a tariffs’ impact on global economic growth.

The SP500 (US500) has managed to stay above its 50-week moving average as of yet, and therefore one may count on a further rebound. Source: xStation5

There is no doubt that the SP500 finds itself at a crucial place, and even as the index closed below its 200DMA during its first session this quarter (it happened for the first time since 2016) it does not mean bulls have already thrown in the towel. Furthermore, a weekly time frame illustrates that bulls have actually tested their significant long-term support line in form of the 50-week moving average. Do notice that this line was broken three times since 2011 in the way which led to a deeper pullback afterwards. Thus, until the price keeps hovering above this line, it appears that bulls could take control anew.

Australian trade balance showed a higher than forecast surplus in March. Source: Macrobond, XTB Research

Looking at the currency market one may spot that the Australian dollar is unexpectedly trading lower on the day being the worst performing currency in the G10 basket. It’s happening despite a slew of the upbeat macroeconomic data from the domestic economy as both services PMIs (CBA and AIG) marked notable improvements in March in comparison the their values from the prior month. To be precise, the CBA gauge rose to 55.6 from 54.2 pushing the composite PMI to 55.4 from 54.3 whereas the measure of AIG increased to 56.9 from 54 with a substantial jump seen in the wage subindex as it went up as much as 5.6 points to 59.9 giving hopes for the Reserve Bank of Australia that the tight labour market is slowly but surely exerting upward pressure on wage growth. Finally, the trade data which seems to be particularly of note nowadays, showed a higher than estimated surplus in February (825 million vs. 725 million AUD) registering the second consecutive increase. On the flip side, the seasonality analysis suggests that the surplus may begin shrinking over the next couple of months.

The Australian dollar is retreating in the morning despite the upbeat data. The first support bulls may eye right now is a lower bound of an ascending channel from where a bullish pullback could occur. Source: xStation5