US equities one percent lower, Europe flat, US dollar falls but so does Aussie - ASX futures unchanged

Jobless claims in the US came in a little lighter than expected last night, although this positive economic news didn't impact markets much and despite it being a small part of the Fed's equation on interest rate timing, the US dollar continued to drop. Some soft corporate earnings in the US dragged markets down there on some otherwise positive--but admittedly superficial--dynamics, being that the US dollar is backing off in chorus with interest rate hike expectations. While lower-for-longer rates in the US don't say anything good about the economy there, they will continue to be supportive of equity markets given the low expectations of returns elsewhere in cash and bond markets. In Australia, we are actually seeing a pick-up in rate-cut expectations once again - and this also is supportive of equity markets. The difference here has been that traders are beginning to feel that, irrespective of a cut to 2.00% rates in Australia, that banking credit reforms with regard to home loans are going to be strongly on the agenda given the RBA's inability to cut rates and isolate housing booms at the same time. This is causing a sell-off in the banks.

The tick-up in RBA rate cut expectations has caused interbank cash rate futures to sell off, dragging the Australian dollar down with it. Unusually, as illustrated in today's second chart, the US dollar index (orange line) traded in the same direction as the AUDUSD currency pair (black line). Logically, when the US dollar sells off the Aussie usually strengthens; however, it seems that rate-expectations are changing once again and FX traders have decided to bring their focus back to the negative effect that a 25 basis point cut to 2.00% rates would have on the Aussie.

In today's first chart, I've plotted WTI crude oil (OILUS), which is breaking a little higher than it was during the second half of April. The headlines are reporting large foreign reserve expenditure by Saudi Arabia, which is occurring due to the gap in government revenues and expenses, caused by lower oil prices. Saudi Arabia is quite famous for throwing money at the public to quell the potential for civil unrest. Youth unemployment is a big problem in Saudi Arabia, and the under 30s make up a staggering two thirds of the population there. As youth enter the workforce and hit frustration due to competition for jobs, social unrest rears its head and the only way to diffuse this is to create unnecessary public sector jobs or increase welfare options. This is a very expensive exercise and--should this story gain more traction--speculators will likely stay on the long side of oil trades in the hope that the Saudis will happily allow prices to rise a little more in order to help fund spending.


Today‚Äôs charts are taken from the Rivkin Trader platform. 30,000 global instruments available to trade including FX, commodities, index, ETFs and international shares. Trade Australian share CFDs from just $8 or 0.10%. Click here or phone 1300 748 546 to open a Rivkin Trader account now.

Upcoming economic announcements: Japanese CPI along with a raft of other Japanese data out at 9:30am, Chinese PMI out at 11am, US ISM manufacturing survey at 12am, all Sydney time.


This article was written by Scott Schuberg, CEO of Rivkin Securities Pty Ltd. Enquiries can be made via info@rivkin.com.au or by phoning +612 8302 3600.

comments powered by Disqus

DISCLAIMER: Rivkin aims to provide clear and simple information to those visiting our website. If any part of this disclaimer does not make sense, please phone Rivkin and ask to speak with a member of our Dealing and Relationship Management Team. Rivkin provides general advice and dealing services on securities, derivatives and superannuation (SMSF). Rivkin also provide SMSF administration and accounting services. Rivkin does not provide advice that takes into account your, or anybody else's, investment objectives, financial situation or needs. We strongly suggest that you consult an independent, licenced financial advisor before acting upon any information contained on this website. Investing in and trading securities (such as shares listed on the ASX) and/or derivatives (such as Contracts for Difference or 'CFDs') carry financial risks. CFDs carry with them various additional risks that differ from more simple securities such as fully-paid company shares. Some of these risks include not owning the underlying instrument from which a price is being derived, settling trades 'over the counter' with a financial institution rather than on a stock exchange, and using leverage to gain access to trades that may have a higher face value than your initial deposit. This risk of leverage means that it is possible to lose more than your initial investment. Our aim is to create more life choices for our clients, which means improving the wealth of clients throughout many market cycles by nurturing a relationship spanning many years. If you are not comfortable with your understanding of the risks involved before using a Rivkin product and service, please contact our office to seek further information or a Product Disclosure Statement, or make an appointment to sit with one of our friendly financial experts. It is in our interest for your Rivkin experience to be a rewarding and comfortable one. Rivkin is a trading name of Rivkin Securities ABN 87123290602, which holds Australian Financial Services Licence No. 332 802.