Summary:

  • US major indices plunged during their first session this quarter as tech stocks weighed on the most
  • SP500 (US500 on xStation5) closed below its 200DMA for the first time since June 2016
  • Australian dollar leads the gains in the morning trading following upbeat PMI and the RBA meeting

The first trading day for US traders turned out to be painful as contained liquidity led to a heavy sell-off on Wall Street with the NASDAQ (US100) falling the most as tech stocks took a hit again. The technological index dropped 2.75% being fuelled by Amazon, Tesla or Microsoft as those firms took centre stage from retaliatory trade steps implemented by China during the weekend. We mean a $3 billion duty imposed on US goods being imported to China including pork and fruit – the measure had been announced earlier but it kicked in just on Sunday. Apart from the NASDAQ the SP500 (US500) witnessed a 2.2% decline whereas the Dow Jones (US30) dipped 1.9%. Furthermore, among reasons which could have contributed to widespread decreases across the US stock market was manufacturing ISM index. The headline gauge slid from 60.8 in February to 59.3 during the last month while the prices paid subindex surged to 78.1 points well above the consensus being set at 72.5. As a result, the index reached its highest point since 2011 reviving another wave of concerns with regard to inflation which could be stocks negative.

link do file download linkThe SP500 closed its first session in the new quarter below the 200DMA for the first time since mid-2016. On the surface, it does not bode well for bulls going forward, albeit they seem to have a crucial support zone still ahead. Thus, should the support placed at around 2540 points break, it could give rise to an extended pullback over the next couple of weeks. Source: xStation5

Having looked at the currency market one may notice the Antipodean currencies are trading higher being up ca. 0.25% each against the greenback in early trading. Over the Asian session there were some events being of note regarding the Australian dollar. First and foremost, AIG manufacturing PMI marked a massive improvement climbing from 57.5 to as high as 63.1 in March. On the flip side, CBA manufacturing PMI shrank from 55.6 to 54.3 during the same period of time sending somewhat equivocal signals on balance the overall backdrop recovered, and this is especially true when we take into account the latest retreat in commodity prices and a trade war between the US and China both being among top Australia trade partners.

There was also the Reserve Bank of Australia decision where the main rate was maintained untouched while the communique was slightly adjusted. Although the Bank still perceives the outlook for household consumption as a source of uncertainty, and the rising AUD being a possible trigger leading to the slower economic growth, it also alluded to the latest USD LIBOR-OIS surge. The Bank added the next suggesting that “there has been some tightening of conditions in US dollar short-term money markets, with US dollar short-term interest rates increasing for reasons other than the increase in the federal funds rate. This has flowed through to higher short-term interest rates in a few other countries, including Australia”. The big question mark is what did the RBA mean and what are implications from a rise of the short-term US dollar rates for the Australian economy. Notice that there were some talks that increased demand for the greenback stemming from the US tax reform (US companies based abroad close their short-term deposits and send money back to the US) is pushing borrowing costs higher.

link do file download linkThe AUDUSD is trying to erase of its prior losses but the major short-term hurdle remains intact. Once the pair breaks the closest resistance line it could push the price toward 0.7770 where another supply area might be localized. Source: xStation5