Australian wool auction sales produced a flourish to finish on a high this week after what has been a tough six months for all participants. To conclude this positive way should be a fillip for all involved as no section of the wool pipeline has been left untouched. Growers are continuing to face the hardships of drought, causing brokers receivals to be  way down. Buyers, exporters and traders are faced with earlier stock and trade losses whilst machinery owners, garment makers and retailers faced slow demand, sales and inventory devaluation. 

The AWEX (Australian Wool Exchange) EMI (Eastern Market indicator) surged 55ac or 3.7% this week to complete the first half of the season at 1558ac clean/kg. This  was a 9.6% or 165ac fall from the season start. At one stage the EMI hit a low point of 1365ac. The USD (US dollar) EMI shot up strongly by 3.3% or 33usc to close at 1067usc clean/kg.  This is a 12% reduction of the US EMI since the start of the season which has given a larger price advantage to overseas buyers. 

The past seven days has been the best week of positive news that the season has produced. The USA and China came to some sort of understanding over their trade imbalance dispute. Hopefully we are well on the way to  clearing up a severely detrimental factor on the global economy. The UK election result has forged the path for pushing Brexit through, with that problem more relevant given the premium market that Europe is for apparel wool products. 

Another contributing factor to the market gains was the lack of the advertised quantity once again failing to materialise at auction. A little over 34,000 bales, or 12% lower volume, eventually saw their way to the selling rostrum. Just 7.7% was passed in as levels gained rapidly. Purchasing was again dominated by the big players of each segment. Significant though was the step up by Chinese top makers on all Merino types and descriptions which gained 70ac to 90ac for the week. Crossbreds were 60ac dearer and cardings plus 20ac.  

Perhaps the market rising in conjunction with the better global economy news is no co-incidence and gives rise to a more positive outlook for the new year ahead? Significant quantities have been held back by growers and decision making as to how and when that is dispersed will need close monitoring by their wool selling brokers. Shearing is reported to be well in advance of normal timings so reduction of fresh shorn wool in 2020 is expected on top of the already 8.5% less volume tested.    

Next week commences the three week recess. Sales will resume 13th Jan 2020. Wishing all a safe and happy Christmas and a wet 2020. 

Forward markets Commentary - Southern Aurora Markets

By: Mike Avery

The spot auction delivered a little Christmas cheer to end a year that almost all participants in the wool pipeline are glad is behind us. While bushfires and drought still cloud the near term we hope the New Year provides us with a more stable landscape. The first half of the season gave us record volatility with merino qualities dropping between five and six hundred cents recovering three to four hundred only give back half of those gains again in November. This disruptive trend lead to issues along the pipeline with contract renegotiations, dear stock overhangs, defaults and overseas custom quarrels causing exporters grief.

This week’s spot auction continued the trend with the last two weeks seeing all qualities gain around 80 cents. This rally gave a welcome boost to the forward markets. 21.0 micron traded early in the week for February maturity at 1690 just under cash, rising 1730 prior to the auction opening Tuesday, peaking Wednesday at 1766 before closing at 1760. A strong basis is now in place for growers to set targets and strategies into the new year to mitigate price risk and manage margins.

Hopefully we will see off shore demand pick up with phase one of the China / USA tariff negotiations pointing to a positive outcome. We expect interest to be maintained into the recess at levels close to cash for the first quarter of 2020.

AUD Commentary - Southern Aurora Markets

By: Garry Booth

We head into the Christmas recess with the Aussie a little softer today at .6840 after earlier in the week trading to a high of .6898, however it's broadly still holding the gains made last week on the rally inspired by President Trumps agreement to commit to phase one of the U.S /China Tariff Reduction Deal. This week’s news centred around the strong win by British Prime Minister Boris Johnson and his move to enact Brexit at the end of January, and there is talk also about an Australian/U.K Trade deal. News from Germany this week inspired traders as leading index data confirmed an expansion of the economy “which is shows it's pulling itself up by its boot straps,” said Ray Attrill, Head of forex strategy at National Australia Bank. The expansion is hoped to flow through to the rest of the E.U block. U.S Stocks remain near record highs after 5 straight records last week. In the U.S markets are fixated by the impeachment process. Trump is widely expected to become the third US president to be impeached but will almost certainly be acquitted next month with the Republican led Senate. 

Technically the Australian Dollar is caught trading within a small sideways trading pattern, while still also broadly contained within the major yearly downtrend. The chart bias suggests another small rally is ahead back to resistance at .6940 and possibly .7080, however we still feel that is a limited rally and after that retest support at .6750 then .6670.