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Australia stocks slide as growth risks mount

3 October 2019

Global stocks declined as traders reacted to weak manufacturing numbers from the United States. Yesterday, the Dow dropped by more than 500 points while the Nasdaq index fell by 125 points. The declines were also in reaction to a new trade war that started yesterday between the United States and Europe. After a WTO victory, the Trump administration said that it would place tariffs on European goods worth more than $7 billion. The EU is expected to retaliate with its own tariffs as well. These tariffs come at a time when the world is going through a manufacturing recession.

AUS200. Australian stocks declined by more than 2%. This was in reaction to the ongoing challenging issues on trade. Earlier today, the Australian Bureau of Statistics released trade data. Numbers showed that the seasonally adjusted trade surplus fell from A$7.25 billion in July to A$5.92 billion in August. In August, seasonally adjusted exports also declined to A$40.9 billion while imports increased to more than A$35 billion. The numbers came a few days after the RBA slashed interest rates by 25 basis points and lowered the inflation target.

The AUS200 index peaked at $6787. Since yesterday, the index has declined from a high of $6761.10 to today’s low of 6475.70. On the four-hour chart, the index is trading below the 14-day and 28-day moving averages. The RSI has declined to the oversold level of 30 while the signal and main lines of the Stochastic indicator are at the oversold level. The index could continue moving lower, to test the important support of $6400.

GBP/USD. Cable was relatively unchanged in the Asian session as traders continued to watch the political circus in the UK. Yesterday, Boris Johnson revealed his Brexit plan. He stated that his plan involved Northern Ireland leaving the EU Customs Union at the end of the transition period along with the UK. In his proposed deal, North Ireland will also stay aligned with EU standards on goods at the end of the 2020 transition period. Johnson also said that both the EU and the UK will commit to a treaty to never conduct customs at the border. The deal was trashed by the EU, which argued that it would be trapped without the backstop. Labour’s Jeremy Corbyn said that he didn’t think the deal will receive any support. Meanwhile, UK stocks had the worst day since 2016.

The GBP/USD pair rose slightly after the speech but remained unchanged in the Asian session. As of this writing, the pair is trading at 1.2300, which is along the 23.6% Fibonacci Retracement level on the hourly chart. This price is between the Envelopes indicator. Key levels to watch today will be the previous low of 1.2200 or the 38.2% Fibonacci Retracement level of 1.2350.

XBR/USD. The XBR/USD pair declined after the US released the inventories numbers. Data showed that inventories rose by more than 3.1 million barrels. This was higher than the consensus estimates of 1.567 million barrels. The decline was also attributed to the slowing manufacturing sector, which tends to lead to a weaker demand. Today, the market will receive more data that will gauge the health of the economy. The ISM will release the non-manufacturing PMI data, which is expected to show a contraction from 56.4 to 55.0. The factory orders for August are expected to slide by -0.2% from the previous gain of 1.4%.

As of this writing, the XBR/USD pair is trading at 52.87, which is slightly lower than the low of 52.22. On the four-hour chart, this was the lowest level since September 2. The price is below the 14-day, 28-day, and 50-day moving averages. The RSI remains slightly along the oversold level of 30. With the pair forming a triple bottom on the four-hour chart, it might start moving higher today.


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