US Stocks flatlined towards the week's close; however, last week's economic news in the US seemed more upbeat, encouraging traders to take equities to new record highs. Industrial Production, Manufacturing and economic capacity all posted solid gains. In contrast, the Chinese economy was far less robust but remains in a healthy mix. Industrial Production YoY sank to 5.6% from 6.7% and Retail Sales at 3.7% from a previous read of 2.3%. All are still positive, showing that the economic stimulus provided by the PBoC is working. One interesting print that came in over the weekend was Foreign Direct Investment (FDI) into China which plummeted to 28.2% YoY in January- May of 2024.  In Australia, the RBA left official rates unchanged at 4.35% for the 5th meeting in a row at its official June meeting. The CB reiterated the need for inflation to come back to within the target of 2% and hinted that rates could even move higher if inflation was not pegged down. Albeit, signs that the economy was weakening, as highlighted by easing GDP growth, rising jobless rates, and slower-than-expected wage growth, contracted the Governor's response. It's all about the data.

But first, let's take a deeper dive into the US figures. Industrial Production MoM was +0.9%, with the YoY number pointing to a positive print of 0.4%, the first really positive number in four months. The MoM number was better than expected, coming in more than 0.3% above forecasts and showing the best gain since July last year. The last two reads showed virtually no growth at all, so the read represented a shot in the arm for the economy. Manufacturing also clocked a good number, with the MoM read also posting a 0.9% gain after a negative print last month and representing a 1.3% turnaround in manufacturing. The YoY came out in the black at a 0.1% gain. Capacity Utilization printed a 78.7% gain, well up on the previous read of 78.2 and 0.3% higher than the forecast of 78.4. The only disappointing read was Retail Sales, which came in below forecasts of 2.3%, well below the forecast of 2.8%, but still positive. Traders seem confident that the economy could weather any downturn regardless of high rates, which we suggest will be the case for some time. A concern we do hold is the up-and-coming print for the Personal Consumption Expenditure (PCE) Price Index.

The Quarterly PCE comes out next Thursday; the price index is known for capturing inflation (or deflation) across a wide range of consumer expenses and reflecting changes in consumer behaviour. As its quarterly number is one, the FED follows as it signals the longer-term trend for prices, hence seeing if the current stubborn inflation is softening. In the first quarter, it came in at +1.8%, and the preliminary estimates have it at 3.3%, representing the highest growth in over a year. The MoM and YoY prints are also due, with both pointing to higher reads of 0.3% and 2.7%, respectively.  The ramifications of such a high number suggest that restrictive monetary policy has not been working for the FED, and other solutions may be needed to get inflation back to the target range of below 2%. This should slow the recent optimism and hopefully see equity prices retreat.

In China, the second-largest economy, the economic numbers remain mixed. Green shoots or recovery give hope that the economy has turned, yet disappointing data flips the optimism quickly. Over the weekend, foreign direct investment (FDI) saw a record decline for the first five months of the year, which testifies to the economy's weakness.  We have been suggesting a pick-up for some time, but like the inflation issue in the US, the recovery is really stubborn. Foreigners see more potential in their local economy or other places over China and are unwilling to invest even with all the stimulus measures being taken.  This could be a bit of a miss on behalf of investors as the PBoC will continue to offer stimulus packages to the domestic economy and, more importantly, has the capacity to do it.

In Australia, last week the Reserve Bank of Australia (RBA) maintained its official interest rate at 4.35% for the fifth consecutive meeting, emphasizing the need to bring inflation back to the target range of 2%. The central bank hinted at the possibility of further rate hikes if inflationary pressures do not ease. The Australian economy showed signs of weakening, with GDP growth slowing down. This slower growth is a critical concern for policymakers. Rising jobless rates and slower-than-expected wage growth were also noted, which could dampen consumer spending and overall economic activity. The National Australia Bank (NAB) Business Confidence Index fell to -3 in May 2024 from an upwardly revised 2 in April, marking the lowest level in six months and turning negative for the first time since November. This week, we have the WBC Consumer Confidence number, which is forecasted to be negative. These declines suggest increasing pessimism among businesses regarding future economic conditions, which we continue to expect weakness to continue.

What can we expect this week? In the United States, the focal points will be the PCE Prices, reports on personal income and spending, and speeches by several Federal Reserve officials. Of note will be Durable Goods Orders and Corporate profits due out on Thursday. Other key releases include the final reading of Q1 GDP growth, durable goods orders, new and pending home sales, the S&P/Case-Shiller Home Price Index, Conference Board consumer confidence, and the Federal Reserve's annual bank stress test results. Additionally, Australia's Westpac Consumer Confidence data will be of interest.

On the position front, we reduced our … position in the S+P (…); however, we are looking to reestablish it once we have a high in place and a clearer trend. We are … at … in the ASX SPI and have added at …; at a daily close above … , we will review the position; however, we are happy to … and will look for a test … this week. We are still … USD/JPY at … and ... We are currently … the AUD/USD (US…) and AUS/CHF (…), which is now showing a small profit.

Trade Focus:

Fundamentals:

Is the AUD about to “pop”? This has been a trade that we refuse to give up on. Although the domestic economy looks weak and expectations for commodities remain mixed, we still like the trade…

Technical Analysis:

The technical picture looks good, and we are currently trading at resistance…

Support              …

Resistance         …

Momentum        …