Overnight Market & Currency Developments – From Our Bankers

Overnight Developments:

  • USD had a knee‑jerk upside reaction and U.S. 10‑year Treasury yields briefly rose to 2.40% following Friday’s release of the hurricane‑affected September U.S. non‑farm payrolls report. While total non‑farm payroll employment fell by 33k (consensus +80k) in September, the unemployment rate dipped by 0.2% to 4.2% (lowest rate since February 2001) and average hourly earnings quickened at a monthly pace of 0.5% (consensus: 0.3%). From a year ago, average hourly earnings grew by 2.9%, the fastest annual pace since June 2009.
  • USD and U.S. 10‑year Treasury yields ultimately corrected lower during the rest of Friday’s trading session because it may be too soon to conclude that U.S. wage inflation is gaining significant traction. In fact, the U.S. Bureau of Labour Statistics warned the “possible effects of the hurricanes” partly reflected the change in earnings. We expect USD to remain resilient this week. The FOMC September meeting minutes (Thu) will likely reinforce the case for a December Fed funds rate hike. Fed funds futures already imply an 80% probability of a 25bps Fed funds rate increase in December.
  • AUD/USD is steady and in our view will consolidate during the week. In Australia, we expect the September business confidence survey (Tue) and October consumer confidence index (Wed) to remain consistent with encouraging economic activity. Meanwhile, favourable global economic activity will continue to underpin firmer commodity prices and support AUD. Technically, important support for AUD/USD is offered at 0.7669 (the 200‑day moving average).

 

Overnight Data:

  • In US economic data, the non‑farm payrolls (employment) fell by 33,000 in September (forecasts +90,000) ‑ the first fall in seven years.  The unemployment rate fell from 4.4% to a 16‑year low of 4.2% and average hourly earnings (wages) rose by 0.5% (forecast +0.3%).  The Labor Department said that hurricanes Harvey and Irma reduced the estimate of September payrolls.  Wholesale sales rose 1.7% in August (forecast flat). Consumer credit rose $13.06 billion in August (forecast $16bn).

 

Global Equity Markets:                                                                                                                   

  • European share markets were mixed on Friday. The Spanish IBEX index fell 1.9% as investors focussed on uncertainty about the political situation in Catalonia. Italian banks fell by around 3% after the European Central Bank asked lenders to set aside more cash to cover bad loans.
  • US share markets ended flat on Friday. The Dow Jones fell by almost 2 points, the S&P 500 fell by 0.1% and the Nasdaq rose almost 5 points or 0.1% to record highs. Over the week the Dow rose 1.6%, S&P 500 rose by 1.2% and the Nasdaq rose by 0.5%.

 

Commodities:                                                                                         

  • Global oil prices slumped as investors feared that over‑supply conditions may re‑emerge. Russia and Saudi Arabia discussed extending the oil supply agreement. Reuters noted, “Saudi Arabia’s energy minister said on Thursday he was ‘flexible’ about prolonging the production‑curbing pact until the end of 2018”. Brent crude fell by US$1.38 or 2.4% to US$55.62 a barrel. US Nymex fell by US$1.50 or 3.0% to US$49.29 a barrel.
  • Base metal prices fell by up to 2.6% on the London Metals Exchange with lead down the most, followed by tin.  But nickel rose 0.6%.
  • The December Comex gold futures price rose by US$1.70 or 0.1% to US$1,274.90 per ounce.  The spot gold price was trading around US$1,275 an ounce in late US trade. Over the week gold fell US$9.90 or 1.8% ‑ the fourth straight gain.  Iron ore rose by US50 cents to US$61.70 a tonne. Over the week iron ore rose by US20 cents.

 

Ahead:

  • In Australia, no major data is scheduled.
  • In the US, no data is scheduled as today is the public holiday, Columbus Day.

 

Indicative Rates (Bank to Sell):

AUD / USD 0.7724 AUD / CAD 0.9608 USD / JPY 112.58
AUD / JPY 86.60 AUD / THB 25.08 GBP / USD 1.3093
AUD / EUR 0.6568 AUD / HKD 5.9708 NZD / USD 0.7069
AUD / GBP 0.5877 AUD / SGD 1.0536 NZD / EUR 0.6023
AUD / NZD 1.0915 AUD / FJD 1.5655 AUD / CNY 5.1409
AUD / CHF 0.7404 AUD / PGK 2.4403 All Ordinaries 5777.43
AUD / DKK 4.8766 EUR / USD 1.1586 Gold $US/oz 1276.75
AUD / SEK 6.2507 EUR / GBP 0.8964 Oil WTC $/b 49.29

 

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