Pause for effect

Market Update: 5 June 2020

After a strong rally in AUD and stocks, the past 2 days is a reminder it doesn’t simply go in one direction.

Coming so close to 70c is a pretty big achievement given we are actually at a higher level than pre-COVD lockdown in Australia of Mid-March. But whilst we are on the precipice of breaching 70c and the 31st Dec high of 0.7032, the momentum that took it here has taken a breather.

Perhaps it’s profit taking (likely) as we go into Non-Farm Payrolls tonight although we come back to the old argument of past data not mattering – Australian Retail Sales yesterday of -17.7% hardly had impact nor did a negative Q1 GDP of -0.3% the day before. What I do find a bit scary is the Unemployment estimate being so wide a number and perhaps the reason to wait on this one. The low is an awful 16% … but the high is 22.5%!

Initial and Jobless Claims coming out weekly has assisting in showing some hiring starting to come about with Initial Claims continuing to fall, nonetheless, it still makes way for the preferred payrolls indicator.

What are signs of improved sentiment in the past few days is the US 10yrs creeping up to 0.83% and Aus 10yr to 1.07% alongside Gold lower to 1710 and VIX lower to 24. These may though have simply been the forced hand of stops on those who remain bearish. Nonetheless, these indicators have reversed from a conundrum to making sense.

Having said all that, if the markets are paused, waiting for the next direction, it’s fair to say everything is now priced in. There’s definitely still geo-political concerns amidst the pandemic – alongside some pretty stretched indicators, but if capital on the sideline is now deployed and shorts are no longer in a position, next week could be very interesting indeed for direction.

Have a great long weekend!

Sources: Bloomberg

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