Aussie trades at fresh 32-month lows before recovering post US GDP – AFEX Monday Update – October 29, 2018

The AUD/USD chart resembled a roller coaster on Friday.  Initially the bears were in control, pushing new lows, however the bulls later gained the ascendancy in the US session helping the Aussie dollar recover from its initial losses and close the week relatively unchanged.

Earlier in the day the AUD hit fresh multi-year lows as risk-aversion swamped the markets.  Equities reversed early morning gains and currencies were swept up in the carnage.

The moves caught many off-guard due to the lack of volatility throughout the week.  Up until 2pm AEST on Friday the weekly range was a mere 72-points and tracking a similar weekly trade range to the week prior, which was the lowest weekly range since 2002.

However the weight of equity market turbulence took its toll, alongside a weakening Chinese yuan that touched it’s lowest level since January 2017.  This saw the AUD sell-off quite suddenly, pushing through the weekly lows at 0.7052 and quickly surpassing the monthly lows at 0.7040, taking out traders stop loss positions which exemplified the moves and test towards psychological support at 0.7000.

But after the release of US 3rd quarter GDP on Friday night the US dollar sold off across the board, enabling the Aussie to bounce off the low of 0.7021 and push all the way back above 0.7100 before closing the session at 0.7087.

Whilst the headline release of 3.5% growth versus 3.3% expected was quite strong, delving into the data traders saw that a considerable portion of growth came from increased inventories whilst exports declined, and thus took the position that the number was overstated and at risk of declining at the next read, and sold their USD holdings accordingly.

Looking ahead and the economic calendar is quite a lot busier than last week.  On Monday the US releases core PCE, the Fed’s preferred measure of inflation, followed by consumer confidence data on Tuesday.  This leads into Australian inflation data on Wednesday which is quickly followed by Chinese manufacturing and services data.  Later that night the US will publish quarterly wage price data, followed by Australian retail sales figures on Friday ahead of US employment numbers.

Given how close traders came to testing 0.7000 on Friday, any negativity in domestic data or strength in US data would likely see that figure tested again.  If it does break through 0.7000 the next key level of technical support coincides with the August 2015 low at 0.6907.  Thereafter and the January 2016 low of 0.6827 is the next key figure to watch.  Whilst the trajectory is for a lower AUD, a break back above 0.7160 could help the Aussie recover in the short-term, although I imagine any rallies will be met by sellers who appear in control at this time.  A sustained move towards 0.7300 could change this view, but the likelihood of this happening looks quite remote given current price action and most market participants still favour a lower AUD from here.

James King
Head of FX Dealing, AFEX
www.afex.com

AMP implodes as investors flee amid fund outflows

Original article by Andrew White
The Australian – Page: 19 & 23 : 26-Oct-18

Wealth manager AMP has advised that its fund outflows totalled $1.5bn in the September quarter, compared with just $243m in the previous corresponding period. Acting CEO Mike Wilkins says lack of fund inflows is a bigger concern than the rise in outflows, adding that the problem is likely to persist until the financial services royal commission delivers its final report. AMP has also announced a $3.3bn deal to sell its life insurance business to Resolution Capital. AMP shares reached a record low on 25 October, reducing its market capitalisation by $2.3bn.

CORPORATES
AMP LIMITED – ASX AMP, AMP LIFE LIMITED, RESOLUTION CAPITAL LIMITED, AUSTRALIA. ROYAL COMMISSION INTO MISCONDUCT IN THE BANKING, SUPERANNUATION AND FINANCIAL SERVICES INDUSTRY, AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION, MACQUARIE GROUP LIMITED – ASX MQG

APRA examines enforcement failures after Hayne mauling

Original article by John Kehoe
The Australian Financial Review – Page: 4 : 26-Oct-18

The Australian Prudential Regulation Authority has launched an internal review of its enforcement policies, following criticism from the banking royal commission. One issue that the review will look at is the use of court-imposed sanctions; the royal commission was very critical of APRA’s unwillingness to use this strategy as a tactic against financial institutions. APRA is also working with the Australian Securities & Investments Commission on the delineation of responsibilities between the two bodies, as well as increasing its scrutiny of the remuneration and incentive policies of financial institutions.

CORPORATES
AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY, AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION, AUSTRALIA. ROYAL COMMISSION INTO MISCONDUCT IN THE BANKING, SUPERANNUATION AND FINANCIAL SERVICES INDUSTRY

Super hit in $50bn plunge

Original article by David Rogers, James Kirby
The Australian – Page: 1 & 2 : 26-Oct-18

The S&P/ASX 200 has shed almost seven per cent so far in 2018, including a fall of 10.8 per cent since August. The big sell-down on 25 October will impact on superannuation funds’ returns, with balanced funds having lost about 2.5 per cent so far in 2018-19. SuperRatings MD Jeff Bresnahan says most super fund members who have chosen the balanced option can expect the value of their super to fall by around four per cent in response to the sell-off.

CORPORATES
STANDARD AND POOR’S ASX 200 INDEX, SUPERRATINGS PTY LTD, DOW JONES INDUSTRIAL AVERAGE INDEX, NASDAQ COMPOSITE INDEX, NIKKEI 225 INDEX, SHANGHAI COMPOSITE INDEX, BELL POTTER SECURITIES LIMITED, AMP LIMITED – ASX AMP, NETFLIX INCORPORATED, FACEBOOK INCORPORATED, ALPHABET INCORPORATED, GOOGLE INCORPORATED, XERO LIMITED – ASX XRO, AFTERPAY TOUCH GROUP LIMITED – ASX APT, WISETECH GLOBAL LIMITED – ASX WTC, AUSTRALIA. FUTURE FUND MANAGEMENT AGENCY, CORELOGIC AUSTRALIA PTY LTD

$19b in property loans breach new rules

Original article by Duncan Hughes
The Australian Financial Review – Page: 21 : 25-Oct-18

Analysis by the Australian Prudential Regulation Authority shows that mortgage lenders approved $19bn worth of loans in the year to September that do not meet their revised lending criteria. This is $9b higher than the previous year, with major lenders recording the biggest growth in such loans. Martin North of Digital Finance Analytics says it is a concern that banks are not complying with their own rules regarding the ability of customers to service their loans. APRA notes that the new rules allow lenders to take into account exceptional circumstances when assessing a home loan application.

CORPORATES
AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY, DIGITAL FINANCE ANALYTICS, SUNCORP BANK, SUNCORP GROUP LIMITED – ASX SUN, AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION, AUSTRALIA. PRODUCTIVITY COMMISSION, AUSTRALIA. ROYAL COMMISSION INTO MISCONDUCT IN THE BANKING, SUPERANNUATION AND FINANCIAL SERVICES INDUSTRY

Why there is a silver lining in bear markets

Original article by David Rogers
The Australian – Page: 26 : 24-Oct-18

Global sharemarkets fell on 23 October, and Wall Street is one of the few markets that are still in positive territory for the year. Tobias Levkovich, the chief US equity strategist at Citigroup, notes that investors have become more focused on risk following the recent sell-off on Wall Street. He says the outlook for the US market remains encouraging until at least the middle of 2019, arguing that a major fall on Wall Street would require US corporate profits to fall sharply. He adds that US companies’ profit margins remain lower than in 2009.

CORPORATES
CITIGROUP INCORPORATED, STANDARD AND POOR’S ASX 200 INDEX, UNITED STATES. EXECUTIVE OFFICE OF THE PRESIDENT, JP MORGAN AND COMPANY INCORPORATED

Macquarie scraps stockbroker commissions to tackle conflicts

Original article by Joyce Moullakis, Samantha Bailey
The Australian – Page: 17 & 28 : 23-Oct-18

Macquarie Group has advised that it will abolish commission payments for its stockbroking advisers and move to a salary and profit share remuneration system from April 2019. Commissions were criticised by former Commonwealth Bank CEO and current AMP chairman David Murray in his Financial System Inquiry as causing the potential for conflicts of interest. However, Macquarie’s decision may not please all brokers and could lead to the departure of some staff.

CORPORATES
MACQUARIE GROUP LIMITED – ASX MQG, COMMONWEALTH BANK OF AUSTRALIA – ASX CBA, AMP LIMITED – ASX AMP, CREDIT SUISSE (AUSTRALIA) LIMITED, NATIONAL AUSTRALIA BANK LIMITED – ASX NAB, JBWERE LIMITED, MORGAN STANLEY AUSTRALIA LIMITED, CRESTONE WEALTH MANAGEMENT LIMITED

‘We’re in the eighth inning’: Oaktree chief wary of bull run

Original article by David Rogers
The Australian – Page: 17 & 28 : 23-Oct-18

Oaktree Capital Management’s co-founder Howard Marks says current financial market conditions favour a defensive investment style. Marks warns that although the bull market may continue for some time yet, the chances of a bear market are increasing. He describes quantitative easing in the wake of the global financial crisis as a "massive experiment" that succeeded, but he says the impact of quantitative tightening is uncertain.

CORPORATES
OAKTREE CAPITAL MANAGEMENT LLC, CITICORP, STANDARD AND POOR’S 500 INDEX, SHANGHAI COMPOSITE INDEX, MSCI EMERGING MARKETS INDEX

Whistleblower at Westpac calls out risks

Original article by James Eyers, John Kehoe
The Australian Financial Review – Page: 8 : 22-Oct-18

An unnamed risk manager at Westpac has claimed that he was bullied and ignored after he voiced concerns about deficiencies in regard to a technology project. He has reported the matter to WorkSafe New South Wales and the Australian Prudential Regulation Authority. The risk manager says his performance reviews appeared to have suffered as a result of his raising concerns about the technology project, and that his treatment was evidence of a poor risk culture at Westpac.

CORPORATES
WESTPAC BANKING CORPORATION – ASX WBC, WORKSAFE NEW SOUTH WALES, AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY, COMMONWEALTH BANK OF AUSTRALIA – ASX CBA, AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – ASX ANZ, NATIONAL AUSTRALIA BANK LIMITED – ASX NAB

US fundamentals strong despite correction

Original article by David Rogers
The Australian – Page: 18 : 22-Oct-18

The S&P 500 recently shed nearly eight per cent, although it has recovered much of the lost ground and remains five per cent higher than at the start of 2018. Kevin Anderson of State Street has downplayed concerns about the recent pullback by US equities, arguing that Wall Street was largely catching up with the bond market and overseas markets. Anderson expects the US sharemarket to rise in 2019 and he is upbeat about the outlook for the US economy, while he forecasts that the Federal Reserve will lift interest rates to about three per cent in 2019.

CORPORATES
STANDARD AND POOR’S 500 INDEX, UNITED STATES. FEDERAL RESERVE BOARD