Overnight Market & Currency Developments – From Our Bankers

Overnight Developments:

  • USD received a little boost from the release of its tax reform plans, higher US Treasury yields and a 0.4% increase in equities.  US 10-year Treasury yields increased by 7bps to 2.30%, the highest rate since end-July, but the bulk of the lift in yields happened before the release of the tax plan.

The Trump administration and senior Republican lawmakers in Congress unveiled another outline of proposed tax reforms, “Unified Framework For Fixing Our Broken Tax Code”.  It is proposed that the Corporate Tax rate will go from 35% to 20%.

The proposed tax plan lacks detail.  The legislative process to get tax reform passed by Congress will most likely take some time. Consequently, we expect the USD to come under renewed downside pressure. Specifically, we do not know the degree of fiscal stimulus generated by the tax reform because no offsetting cost-cutting measures were outlined. Moreover, the tax treatment of repatriated foreign cash earnings by U.S. corporations is unclear.

  • AUD/USD remains heavy but is above its month to date low reached yesterday. Iron ore futures edged a bit lower yesterday.  Iron ore prices have decreased by $15 per ton so far this month while AUD has eased by 1½ cents.  The resilience of AUD to lower iron ore prices reflects higher Australian interest rates; the yield on the 2 year bond has increased by 11 basis points this month. RBA Deputy Governor Debelle delivers a speech on “Central bank independence in retrospect” to a Bank of England conference but we do not expect AUD to react (7pm London).

 

Overnight Data:

  • US durable goods orders rose by 1.7% in August (forecast +1%). Pending home sales fell 2.6% in August (forecast ‑0.5%). And mortgage applications fell 0.5% over the past week. The RBNZ left rates unchanged as expected.
  • President Trump unveiled his tax reform plan.  It proposes to cut the corporate tax rate from 35% to 20%.  There would be just three (from seven now) tax rates for individuals ‑12, 25 and 35%. The first $12,000 of income would be tax free.  The estate tax (death tax) is to be abolished. There were no financing details.

 

Global Equity Markets:                                                                                                                  

  • European share markets rose on Wednesday.  There are hopes that tax reform in the US may finally go ahead and that will serve to lift both US and global economic activity.  The Euro fell against the greenback, boosting exporters. The STOXX 600 lifted by 0.4% while both the German Dax and the UK FTSE also rose by 0.4%.  In London trade, shares in Rio Tinto rose by 0.2% while BHP fell by 0.5%.
  • US share markets rose on Wednesday on hopes that the US President’s tax plan may be adopted, boosting economic activity.  Technology stocks were favoured and financials rose on rising hopes for a rate hike in December.  The Dow Jones index rose by 56 points or 0.3% after being up 87 points. The S&P 500 was up by 0.4% and the Nasdaq was higher by 73 points or 1.2%.

 

Commodities:                                                                                         

  • Global oil prices were mixed on Wednesday. US prices rose after crude inventories fell by 1.8m bbls last week. Analysts had tipped a rise in stocks of 3.4m bbls. Brent crude fell by US54 cents or 0.9% to US$57.90 a barrel. US Nymex rose by US26 cents or 0.5% to US$52.14 a barrel.
  • Base metal prices were mixed on the London Metal Exchange.  Nickel fell by 2.3% and other metals lost up to 1% but copper rose 0.6% and aluminium rose by 0.2%.  The December Comex gold futures price fell by US$13.90 or 1.1% to US$1,287.80 per ounce.  The spot gold price was trading around US$1,282 an ounce in late US trade. Iron ore fell by US$1.20 or 1.9% to US$62.80 a tonne.

 

Ahead: 

  • In Australia, the “Finance & Wealth” publication is released.
  • In the US, the final estimate of economic growth in the June quarter is released with weekly data on claims for unemployment insurance and the Kansas City Federal Reserve survey.

 

Indicative Rates (Bank to Sell):

AUD / USD 0.7803 AUD / CAD 0.9654 USD / JPY 112.78
AUD / JPY 87.62 AUD / THB 25.23 GBP / USD 1.3398
AUD / EUR 0.6627 AUD / HKD 6.0331 NZD / USD 0.7206
AUD / GBP 0.5798 AUD / SGD 1.0600 NZD / EUR 0.6135
AUD / NZD 1.0811 AUD / FJD 1.5892 AUD / CNY 5.1831
AUD / CHF 0.7432 AUD / PGK 2.4737 All Ordinaries 5725.52
AUD / DKK 4.9207 EUR / USD 1.1595 Gold $US/oz 1281.53
AUD / SEK 6.3428 EUR / GBP 0.8766 Oil WTC $/b 52.09

 

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