Overnight Market & Currency Developments – From Our Bankers

Overnight Developments:

  • USD firmed slightly overnight against most major currencies. There are no policy-relevant U.S. economic data release this week but progress on U.S. tax reform can continue to offer USD some support. The Senate Republicans are expected to put their 2018 budget resolution to a vote later today or sometime this week. The Senate’s budget resolution as currently drafted allows for a US$1.5 trillion increase to the U.S. budget deficit over the next ten years (equivalent to roughly 0.8% of GDP). The resolution contains a legislative tool that could facilitate adoption of a tax reform bill later this year.
  • AUD/USD drifted lower overnight on USD strength. Still, we believe AUD outperformance is this week’s main currency theme. Encouraging Chinese economic activity and favourable Australian September employment conditions later in the week will underpin a firmer AUD. Likely positive pro‑growth outcomes from China’s 19th National Party Congress may also favour AUD this week. AUD is unlikely to be materially impacted by today’s RBA October meeting minutes (11:30am Sydney). The Governor’s October Statement was neutral in tone and consistent with policy remaining on hold for an extended period of time. Consequently, we are not expecting anything in the October minutes to suggest that the RBA may be contemplating tightening policy in the near future. On the speaker front today, RBA Assistant Governor Luci Ellis takes part in a panel discussion on the state of Australia (11:30am Sydney). Her comments may generate some AUD volatility.

 

Overnight Data:

  • The New York Fed’s Empire State manufacturing index rose to a 3‑year high of 30.2 points in October (forecast: 20.7 points) from 24.4 points in September, supported by shipments of goods.

 

Global Equity Markets:                                                                                                                  

  • European share markets were mixed on Monday.  Spanish stocks came under pressure with the IBEX index down by 0.7% on political uncertainty in Catalonia.  Elsewhere, the STOXX 600 was flat, but remained near 4‑month highs.  Shares of French company Ipsen increased by 6.1% after reporting positive news on a liver cancer trial.  The German Dax rose by 0.1%.  The UK FTSE fell 0.1%, despite support from large mining stocks on the back of rising metals and oil prices.  In London trade, shares in Rio Tinto rose by 0.8% while BHP rose by 1.4%.
  • US share markets rose to fresh record highs on Monday, led by banking stocks.  JPMorgan and Bank of America shares advanced by around 1.5% as they tracked the climb in US Treasury yields, which benefits banks.  Technology stocks were strong performers, led by Apple which rose by 1.5% following a bullish brokerage call on the iPhone maker.  The Dow Jones rose by 85 points or 0.4%, the S&P 500 rose by 0.2% and the Nasdaq lifted 18 points or 0.3%.

 

Commodities:                                                                                         

  • Global oil prices rose by around 1.0% on Monday on increased geopolitical tensions in the Middle East. Iraqi forces entered the oil‑rich city of Kirkuk.  Security concerns briefly shut around 350,000 barrels per day of production.  Fears of new US nuclear‑related sanctions against Iran also supported oil prices.  Brent crude rose by US67 cents or 1.2% to US$57.84/bbl. US Nymex rose by US42 cents or 0.8% to US$51.87/bbl.
  • Base metal prices broadly increased on the London Metals Exchange, led by copper (+3.8%) which rose to a new 3‑year high on strong Chinese economic data.  Zinc (‑2.0%), however, was a relative underperformer.  The gold futures price rose by US$2.50 to $1,307.10.  The spot gold price was trading around US$1,294.94 an ounce in late US trade. Iron ore rose by US$2.40 or 4.0% to US$62.40 a tonne.

 

Ahead:

  • In Australia, the Reserve Bank Board minutes are released, together with weekly consumer sentiment and new vehicle sales data.
  • In the US, import and export prices, industrial production and NAHB housing market data are all released.

 

Indicative Rates (Bank to Sell):

AUD / USD 0.7801 AUD / CAD 0.9686 USD / JPY 112.16
AUD / JPY 87.12 AUD / THB 25.05 GBP / USD 1.3252
AUD / EUR 0.6596 AUD / HKD 6.0302 NZD / USD 0.7178
AUD / GBP 0.5862 AUD / SGD 1.0528 NZD / EUR 0.6084
AUD / NZD 1.0852 AUD / FJD 1.5895 AUD / CNY 5.1413
AUD / CHF 0.7456 AUD / PGK 2.4649 All Ordinaries 5917.24
AUD / DKK 4.8995 EUR / USD 1.1649 Gold $US/oz 1295.47
AUD / SEK 6.3084 EUR / GBP 0.8904 Oil WTC $/b 51.81

 

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