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Credit growth weak ahead of RBA rate cut. May: 0.2% mth, 3.6%yr.

Credit growth was weak ahead of the RBA lowering interest rates on June 4, the first move in official rates since 2016.

Credit growth has slowed to a sluggish pace as the housing sector weakened in response to tighter lending conditions and a softening of demand. In April and May, another factor was broadly flat results for business credit.

Total credit grew by only 0.15% in April and then by 0.16% in May, the softest results since the start of 2013. In May, the mix was: housing, +0.23%; personal, -0.6%; and business, +0.1%.

Annual credit growth is 3.6% currently, the slowest pace since October 2013. Credit growth has progressively eased since expanding by 6.6% in 2015, with growth moderating to 5.6% in 2016, +4.8% in 2017 and +4.3% in 2018.

Key to this trend has been the housing sector. Housing credit growth has moved lower over recent years: from 7.4% in 2015; 6.3% in both 2016 and 2017; to 4.7% in 2018. The latest annual reading is 3.7%, the weakest reading in the history of the series (dating back to the late 1970s.)

In 2018, the housing sector downturn accelerated as lending conditions tightened further. New lending contracted by 5.9% in the six months to June 2018 and then fell sharply, down by 14.5% in the six months to December 2018. The downturn broadened to owner-occupiers, with finance to this segment only 2.3% lower in 2018H1 then slumping 13.9% over 2018H2.

Early in 2019, the pace of decline in new lending has eased, consistent with some stabilisation of auction clearance rates.

Looking ahead, the prospect for a stabilisation of the housing market has improved. Sentiment has bounced following the May 18 Federal election, with the return of the Coalition government. The RBA lowered rates in June, with follow-up cuts likely, and APRA is proposing to moderate the buffer for mortgage serviceability assessments.

In the summary of opinions at June 19-20 BoJ meeting, it's noted that Japan's economy is "likely to continue on a moderate expanding trend". And "year-on-year rate of change in the consumer price index (CPI) is likely to increase gradually toward 2 percent". Although "downside risks warrant attention", it's "appropriate" to continue with "current monetary policy stance".

However, there was "an increase in uncertainties regarding overseas economies. US-China trade conflicts and threat of no-deal Break has "started to affect Japan's economy and people's sentiment". The schedule consumption tax hike could "exert downward pressure on economic activity and prices."

It's argued that it's important for BoJ to take "some kind of policy responses if some changes emerge in the baseline scenario of the outlook for prices". And, "all policy measures -- including adjustments in short- and long-term interest rates, an acceleration in the pace of expansion in the monetary base, and an increase in the amount of assets to be purchased -- should be deliberated when considering additional easing."

Additionally, it's also argued that considering growing expectation for easing by Fed and ECB, BoJ "also needs to strengthen monetary easing". And, "it is necessary to further consider in depth the feasibility of a wide range of additional easing measures, as well as their effects and side effects."

Full summary of opinions here.

At sideline of G20 today, in Japan, Chinese President Xi Jinping said in a BRICS meeting that protectionist measures taken by some developed countries are "destroying global trade order". He added "this also impacts common interests of our countries, overshadows the peace and stability world-wide." Xi called for BRICS to This also impacts common interests of our countries, overshadows the peace and stability world-wide,"

Trump met Japan Prime Minister Shinzo Abe and Indian Prime Minister Narendra Modi. Trump said he expects to announce "very big" trade deals with both Japan and India. Modi noted that four issues were discussed including Iran, 5G communications networks, bilateral relations and defense relations.

At a news conference, European Commission President Jean-Claude Juncker warned the "difficult" US-China trade relations are "contributing to the slowdown of the global economy". He'd draw both US and Chinese attention to the "harmful impact this controversial matter is creating."

Trump and Xi are scheduled to meet at 0230 GMT on Saturday. For now, it's believed that some form of agreement is already in place to halt recent escalation in US-China trade war. But nothing is done until it's done. A Trump-Kim style negotiation breakdown cannot be totally ruled out or now.

AUD/USD started a strong recovery and traded above the 0.6950 resistance area. Similarly, there were strong gains in NZD/USD above the 0.6650 and 0.6680 resistance levels.

Important Takeaways for AUD/USD and NZD/USD

• The Aussie Dollar regained traction and climbed higher from the 0.6880 support against the US Dollar.
• There is a crucial bullish trend line forming with support near the 0.6990 level on the hourly chart of AUD/USD.
• NZD/USD also followed a bullish path and traded above the 0.6650 resistance level.
• It is also following a major bullish trend line with support near 0.6688 on the hourly chart.

AUD/USD Technical Analysis

The Aussie Dollar started a strong upward move above the 0.6900 pivot level against the US Dollar. The AUD/USD pair broke the key 0.6910 and 0.6950 resistance levels to move into a bullish zone.

The pair even gained traction above the0.6980 level and settled well above the 50 hourly simple moving average. Finally, it surpassed the 0.7000 handle and recently traded to a new weekly high at 0.7009 on FXOpen.

It is currently trading in a strong uptrend above 0.6980 and 0.6990 supports. There is also a crucial bullish trend line forming with support near the 0.6990 level on the hourly chart of AUD/USD.

The 23.6% Fib retracement level of the last wave from the 0.6941 low to 0.7009 high is also near the 0.6993 level to act as a support.

Therefore, if there is a downside correction, AUD/USD is likely to find a strong support near the 0.6990 level. The next key support is near the 0.6975 level and the 50% Fib retracement level of the last wave from the 0.6941 low to 0.7009 high.

An intermediate support is near 0.6980 and the 50 hourly simple moving average. Therefore, as long as the pair is above the 0.6975 level, it is likely to continue higher.

On the upside, an immediate resistance is near the 0.7010 level. If there is an upside break above 0.7010, the price could continue to rise towards the 0.7040 level in the near term.

NZD/USD Technical Analysis

The New Zealand Dollar also started a strong recovery from the 0.6550 support area against the US Dollar. The NZD/USD pair broke the 0.6600 and 0.6620 resistance levels to move into a positive zone.

The upward move gathered pace above the 0.6650 level and the 50 hourly simple moving average. The pair even climbed above the 0.6680 level and recently spiked above 0.6700.

A swing high was formed at 0.6708 and the pair is currently correcting lower. It is testing the 0.6690 support and the 23.6% Fib retracement level of the last wave from the 0.6626 low to 0.6708 high.

Moreover, the pair is also holding a major bullish trend line with support near 0.6688 on the hourly chart. If there is a downside break, the pair could test the 0.6680 support and the 50 hourly SMA.

The next key support is near the 0.6660 level or the 50% Fib retracement level of the last wave from the 0.6626 low to 0.6708 high. As long as the pair is trading above the 0.6660 and 0.6650 pivot levels, there could be more gains.

On the upside, an immediate resistance is near the 0.6710 level, above which NZD/USD could rise towards the 0.6730 or 0.6745 level.

STOCKS

Asians are trading in red indicating the cautiousness ahead of the US-China meeting tomorrow. A positive outcome of this meet over the weekend could trigger a fresh leg of rally in equities next week. Dow is poised near a key support and could see a fresh rise while it holds. DAX has bounced from a key support and is showing sign of strength for further rise. Nikkei and Shanghai can consolidate sideways before moving higher. Sensex and Nifty has key immediate resistances which if broken can trigger a fresh rise.

The support at 26450 on the Dow (26526.58, -10.24, -0.04%) is holding well. The Dow has bounced from a low of 26465.32 yesterday. A strong rise past 26635 will bring back the momentum and will pave way for our preferred target levels of 27200 and 27500. However, as we have been cautioning, a break below 26450 (less preferred) can take the Dow to 26250 before the expected rise.

DAX (12271.03, +25.71, +0.21%) is regaining strength slowly. The support in the 12200-12170 region is holding very well as expected. DAX could be gearing up for a fresh rally to 12500-12600 in line with our expectation.

Nikkei (21246.63, -91.54, -0.43%) has come-off after a strong bounce yesterday. The near-term outlook is mixed. A range-bound move between 21000 and 21500 is possible for some time. Within this range, the bias is bullish to break 21500 and test 21750 on the upside after which a sharp fall is possible.

The resistance in the 3010-3020 is holding well on Shanghai (2986.73, -10.07, -0.34%). The index can consolidate between 2950 and 3020. The broader bias is bullish to see breakout of this range above 3020 and a rise to 3050-3100 in the coming weeks.

Nifty (11841.55, -6.00, -0.05%) broke above 11900 yesterday as expected but failed to sustain higher. Immediate support is at 11800. While above this support, the view remains bullish to test 12000-12100 in the coming days. A break below 11800 (less preferred) can take it to 11700 again.

Similarly, Sensex (39586.41, -5.67, -0.01%) failed to breach 39750 decisively yesterday. However, it is holding above the immediate support level of 39500. While above this support, the possibility is high of the index breaking above 39750 and test 40000 and 40250 on the upside.

COMMODITIES

Overall Crude prices are likely to face rejection from respective resistances above current levels unless a rise is triggered by any unexpected news coming from the US-China talks due tomorrow.Gold looks bullish while Silver and Copper could trade sideways for some sessions.

Brent (65.58) is trading lower ahead of the OPEC+ meet and the US-China meet in the G20 summit. Oil prices May remain stable untill mid-next week before deciding on further movement. 67-69 continues to be important near term resistance zone to keep a watch on.

Nymex WTI (59.28) is stable near yesterday's levels and could face rejection from 60 in the near term.

Gold (1424.90) has risen as immediate support near 1400 is holding well. While above 1400, there is scope for rising back towards 1450 or higher in the near term. Medium term target of testing 1500 remains intact.

Silver (15.34) could trade between 15.20 and 15.65 in the near term, both being immediate support and resistance levels.

Copper (2.7170) has dipped slightly. 2.76 is an interim resistance which is likely to hold in the near term. While below 2.76, Copper could trade in the 2.68-2.76 region.

FOREX

Currencies are almost stable. Euro looks bullish in the near term while Dollar Yen, Euro-Yen, Pound and Aussie could see some dips in the next few sessions. Rupee is likely to strengthen too but has important support just below current levels. Markets await outcome from the US-China meet due tomorrow.

Dollar Index (96.18) is stable and while below 96.50, sentiment for the index remains bearish.

Euro (1.1370) has moved up again and could rise towards 1.1380-1.1400 in the near term.

Dollar-Yen (107.60) has come off while resistance near 108 seems to be holding just now. A sharp fall from here, if seen could bring in 107.0-106.50 again into the picture.

Euro-Yen (122.34) has also fallen after rising above 122.50. Although there is room on the upside towards 123-124, any near term dip could be limited to 121.

Aussie (0.7006) is likely to test 0.7050 on the upside before coming off from there in the near term.

Pound (1.2670) could test immediate support near 1.26 from where a bounce to 1.28 looks likely in the near term.

USDCNY (6.8726) is likely to test support near 6.85/82 while upside could be capped at 6.90.

USDINR (69.07) dropped sharply yesterday. It could test 69.0-68.90 today from where a bounce back towards 69.20/30 is possible. A break below 68.90, if seen would turn bearish for the currency pair indicating a fall in the medium term bringing in 68.50 into the picture. For now, we may look for a bounce from 68.90-69.00 region.

INTEREST RATES

Bond market seems to remain cautious ahead of the G-20 meeting and the much awaited talk between the US and Chinese Presidents tomorrow. The outcome of this meeting over the weekend would set the trend going forward.

The US Treasury Yields were mixed yesterday. The yields on the near-end, 2Yr (1.74%) and 5Yr (1.77%) dipped slightly while those at the far end, 20Yr (2.02%) and 30Yr (2.54%) remained stable. The view remains the same. The 30Yr yield can remain range bound between 2.53% and 2.60% with the broader bias being bearish to break 2.53% and test 2.50% and 2.48% on the downside. The 10Yr can oscillate between 2% and 2.10% for some time.

The German Yields have dipped across tenors. The 5Yr (-0.65%), 10Yr (-0.32%) and 30Yr (0.25%) were down 1 bps each while the 2Yr (-0.75%) was down 2 bps. The trend is down. The 30Yr can test 0.2% and the 10Yr can inch down to -0.40% in the coming days.

The 10Yr GOI (7.0290%) has come-off from near the resistance at 7.10%. It can fall to test 6.90% - the lower 6.90%-7.10% sideways consolidation. The broader bearish view remains intact. The 10Yr GOI is likely to break below 6.90% and fall to 6.80%-6.75% in the coming days.

Key Highlights

• The US Dollar started a decent recovery from 106.80 against the Japanese Yen.
• USD/JPY is facing a strong resistance near 108.20 and a bearish trend line on the 4-hours chart.
• The US GDP in Q1 2019 grew 3.1%, similar to the market expectation.
• The US Personal Income in May 2019 could rise 0.4% (MoM), more than the last +0.3%.

USDJPY Technical Analysis

After a significant decline, the US Dollar found support near 106.80 against the Japanese Yen. The USD/JPY pair started a short term recovery and recently climbed above the 107.50 resistance.

Looking at the 4-hours chart, the pair managed to climb above the 107.65 pivot level and the 50% Fib retracement level of the downward move from the 108.72 high to 106.77 low.

The pair even spiked towards the 108.00 level, but the 100 simple moving average (red, 4-hours) acted as a strong resistance. It seems like the pair is facing a major hurdle near 108.20 and a bearish trend line on the same chart.

The 76.4% Fib retracement level of the downward move from the 108.72 high to 106.77 low is also near the 108.22 level. Therefore, a successful follow through above the trend line and the 100 SMA is needed for further gains.

Conversely, if USD/JPY fails to move above the 108.20 resistance, there could be a fresh decline. An initial support is near the 107.50 level, below which the pair may revisit the 107.00 level.

Fundamentally, the US Gross Domestic Product Annualized reading was released by the US Bureau of Economic Analysis. The market was looking for a 3.1% growth in Q1 2019.

The actual result was similar to the forecast, as the US GDP grew 3.1% in Q1 2019, according to the “third” estimate. Looking at the real gross domestic income (GDI), there was a 0.1% rise in Q1 2019, compared with an increase of 0.5% in the fourth quarter.

The report added:

The average of real GDP and real GDI, a supplemental measure of U.S. economic activity that equally weights GDP and GDI, increased 2.1 percent in the first quarter, compared with an increase of 1.3 percent in the fourth quarter.

Overall, USD/JPY is trading near a crucial resistance area, whereas EUR/USD and GBP/USD are trading nicely above key supports.

Economic Releases to Watch Today

• UK GDP for Q1 2019 (QoQ) – Forecast +0.5%, versus +0.5% previous.
• Euro Zone CPI for June 2019 (YoY) (Prelim) – Forecast +1.2%, versus +1.2% previous.
• Euro Zone Core CPI for June 2019 (YoY) (Prelim) – Forecast +1.0%, versus +0.8% previous.
• US Personal Income for May 2019 (MoM) – Forecast +0.4%, versus +0.3% previous.
• Chicago Purchasing Manager’s Index for June 2019 – Forecast 53.1, versus 54.0 previous.

The Canadian dollar rose 0.20 percent on Thursday awaiting the outcome from the trade meeting between US President Trump and his Chinese counterpart Xi Jinping.

The US dollar is mixed against major pairs on Thursday with commodity currencies leading the pack against the greenback. The uncertainty on what will be the outcome has both pressured the dollar, but also lifted it as traders are preparing for a binary endgame.

A truce is expected with more negotiation yet to come, but most signs point to an end of the tariff war. Yet, both sides are also coming not ready to give away any ground and Trump has said he will decide on tariffs after the meeting with Xi.

The Fed has hinted at upcoming rate cuts, but comments from Fed members this week have been less dovish to recalibrate market sentiment. A 50 basis point cut was ruled out by Fed member Bullard, while Chair Powell remains hawkish on the US economy but is concerned about the negative effect of a trade war and US consumer sentiment.

The Fed led major central banks in ending its easing cycle and moving toward rate normalization, there are doubts that the American central bank will be a leader in rate cuts, or do minimal adjustments to the disappointment of the White House.

Oil prices traded in a right range ahead of the anticipated sit-down in Japan as part of the G20. The meeting between Trump and Xi is so important that the OPEC+ rightly delayed their own ministerial meeting to the week after, so that they could reach a more informed decision.

A successful meeting, even if there is no blockbuster deal announcement, will still be positive for energy prices as easing trade uncertainty is an upgrade to global growth forecasts.

Middle East tensions will keep crude bid, as will the drop in US inventories as per the latest weekly EIA report. Global demand has maintained strong levels, and the final catalyst would be an end to the US-China trade war.

Gold lost 0.28 percent on Thursday and is fighting to trade above $1,400. The yellow metal reclaimed its crown as top safe haven, but market optimism is reducing the appeal of a refuge as the G20 sidebar meeting between the US and China could be the end of the tariff war.

The two sides still remain far apart despite the coordinated goodwill statements. We have been here before, with a deal in sight, only for it all to crumble away with a new round of trade disputes.

The same tensions keeping crude bid, will work in favor of gold as investors will flock to the metal if there is a need for a safe haven.

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AUDUSD remains on the offensive on correction with more gain expected. On the upside, resistance lies at the 1.7050 level. A cut through here will turn attention to the 0.7100 level and then the 0.7150 level where a violation will set the stage for a retarget of the 0.7200 level. Support resides at the 0.6950 level where a breach will aim at the 0.6900 level. Below here will set the stage for a run at the 0.6850 level with a cut through here targeting further downside pressure towards the 0.6800 level. On the whole, AUDUSD faces further upside threats.

Investors remained hopeful that Trump may avoid further escalation with China and this pushed the markets higher

Stocks

• The S&P 500 Index is set to record the best month for 2019, the index jumped 0.40% as of 15:40 London time.
• The Stoxx Europe 600 Index moved back into positive territory and recorded gain of 0.05%.
• The MSCI Emerging Market Index remained mostly positive but recorded gain of 0.08%.

Currencies

• The Bloomberg Dollar Spot Index continued its move to the upside despite some weaker US GDP number. It climbed 0.01%.
• The Euro reacted to the German Inflation number which remained at 0.3%. The currency dropped by 0.18% to $1.1363.
• The British pound  failed to move higher despite hopes of no deal Brexit isn’t likely to happen. The currency fell 0.09% to $1.2686.
• The Japanese yen dipped 0.16% to 107.85 per dollar.

Bonds

• The yield on 10-year Treasuries fell one basis points to 2.04%.
• Germany’s 10-year yield dropped by one basis point to -0.31%.
• Britain’s 10-year yield climbed two basis point to 0.833%.

Commodities

• West Texas Intermediate crude remained sensitive to Iran related news and gained 0.05% to $59.42 a barrel.
• Gold price dropped maintained its price above the critical level of 1400. It traded mostly in negative territory and dropped 0.60%.