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Hong Kong gains & AUD/USD

MARKETS

Shares in Asia have started the new week and new month with a mostly positive tone, led by Hong Kong. There is a risk-on tone in forex markets with the Australian dollar a top riser as it crossed its 200-day moving average. In commodities markets gold and silver were making solid gains with silver retaking $18 per oz for the first time since February.

The Hang Seng rose in excess of 3% in its first reaction to US President Trump’s press conference on Friday. The Dow Jones and S&P 500 both rose over 3% last week to close out a second monthly gain.

The Aussie has been trading in sync with the S&P 500 index, which rose above its own 200-day moving average, as well as the widely-watched 3000 level last week. Silver has been moving higher since the gold/silver ratio hit a record high in March but accelerated in May with a gain of over 20%.

INSPIRATION

Do more of what works and less of what doesn't.

- Steve Clark | Trader & Founder of Omni Partners

Hong Kong


Investors had been waiting most of the week for the official ‘US response’ to China’s new security law for Hong Kong. Trump said he would remove the city’s ‘Special status’ with the United States that gives it favourable trading terms. But he stopped short of escalating the trade war with China.

Hong Kong has responded by calling Trump’s actions “unjustified” and China called it “gross interference.” The removal of the special status will likely impair long-term capital flows into Hong Kong but from a short-term trading perspective, there is some relief that the worst-case scenarios like new sanctions didn’t play out.


US Riots


The death of George Floyd, a black man in Minneapolis who died after a police officer knelt on his neck has been the trigger for a wave of violent protests across the United States. Markets have brushed off the riots so far, putting more emphasis on US-China relations and the future of Hong Kong.

However, should the riots continue they could start to threaten the reopening of the US economy and potentially darken the general sense of optimism across financial markets.

RBA Preview


The Aussie dollar is in focus with the Reserve Bank of Australia (RBA) due to set interest rates at its meeting tomorrow. Expectations are that the official Australian benchmark interest rate will stay at a record low of 0.25% and so too will the 3-year bond yield target stay at 0.25%.

As a reminder, the RBA started an asset purchase program for the first time in March – but opted for ‘yield curve control’ where it targets a certain yield in government debt markets- rather than outright QE with a fixed amount of bond purchases.

The meeting comes a day before GDP data could reveal the beginning of the end of a record 30+ year stretch of economic growth that saw Australia dodge a recession, even during the 2008/9 financial crisis. Australian GDP is expected to have risen by +1.4% y/y in Q1 but the RBA is forecasting a -10% contraction across 2020.

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