Overnight Market & Currency Developments – From Our Bankers

Overnight Developments:

  • USD corrected lower overnight, U.S. 10‑year Treasury yields are up 3.6bps to 2.34% and the S&P500 rose to a record high. USD fell mostly against CAD and EUR. USD largely ignored the bigger than expected decline in the hurricane‑affected U.S. September housing starts and building permits. USD was also not materially impacted by the October Fed Beige Book. The Beige Book indicated that the pace of U.S. economic growth remains split between modest and moderate. And despite widespread labour tightness, the majority of Districts reported only modest to moderate wage pressures. In our view, muted U.S. inflation pressures will continue to weigh on U.S. interest rate expectations and limit USD upside.
  • Nevertheless, progress on U.S. tax reform can offer USD some support. The Senate Republicans are expected to put their 2018 budget resolution to a vote by the end of the week. U.S. Senate Republican whip John Cornyn believes Republicans have enough votes to pass a 2018 budget resolution measure on Thursday (New York time). The resolution contains a legislative tool that could facilitate adoption of a tax reform bill later this year.
  • AUD/USD traded within a narrow range overnight. Higher global equity market supported AUD. AUD/USD has scope to grind higher today underpinned by encouraging Chinese economic activity and favourable Australian September employment conditions. Leading indicators suggest China’s economy will likely grow at an annual pace of 6.8% in Q3 driven by steady consumption and investment (1pm Sydney). This will support commodity prices and Australia’s terms of trade. In Australia, we anticipate the economy to add 20k jobs in September (consensus: +15k) making it seven consecutive months of solid jobs increase. We also expect the unemployment rate to dip by 0.1% to 5.5% on a small fall in the participation rate.

 

Overnight Data:

  • The US Fed’s Beige Book reported that activity grew at a moderate pace in September through early October. The jobs market was tightening but price pressures were benign. US housing starts fell 4.7% to a 1.127 million annual pace in September (forecast 1.175 million). Mortgage applications rose 3.6% in the past week. And overall net capital flows into the US totalled US$125 billion in August after net outflows of US$7.3 billion in July.

 

Global Equity Markets:                                                                                                                  

  • European share markets were generally firmer on Wednesday. Merger and acquisition activity drove investor interest as well as corporate earnings results.  Spanish road toll operator, Abertis, rose to record highs after German builder Hochtief unveiled a $20.1 billion bid for the company, trumping an offer from Italy’s Atlantia. According to Thomson Reuters I/B/E/S estimates, European third-quarter earnings are expected to grow by 4.5% from the same period in 2016. The STOXX 600 index rose by 0.3% The German Dax and the UK FTSE both rose by 0.4%. In London trade, shares in Rio Tinto fell by 3% and BHP lost 1.8%.
  • US share markets rose on Wednesday to fresh record highs. Shares in IBM soared by 8.9%. It reported third‑quarter revenue ahead of expectations and forecast it was now on a growth track after recording 22 quarters of declining annual revenues. The Dow Jones rose by 160 points or 0.7%, the S&P 500 by 0.1% and the Nasdaq by 0.6 points.

 

Commodities:                                                                                         

  • Global oil prices rose slightly on Wednesday. Investors weighed up tensions in the Middle East with mixed US inventory data. US crude inventories fell in the latest week but gasoline and diesel stocks rose. Brent crude rose by US27 cents or 0.5% to US$57.88 a barrel. US Nymex rose by US16 cents to US$52.04 a barrel.
  • Base metal prices fell by up to 1.3% on the London Metals Exchange on Wednesday with tin and nickel down the most. But zinc and lead bucked the trend, up by 2.2% and 1.3% respectively. The gold futures price fell by US$3.20 or 0.2% to $1,283.00 an ounce. The spot gold price was trading around US$1,281 an ounce in late US trade. Iron ore was unchanged at US$61.70 a tonne.

 

Ahead:

  • In Australia, September jobs are forecast to rise by 20k.
  • In China, Q3 GDP is out.
  • The US Philadelphia Fed survey, unemployment claims and the leading index are out.

 

Indicative Rates (Bank to Sell):

AUD / USD 0.7798 AUD / CAD 0.9639 USD / JPY 112.93
AUD / JPY 87.68 AUD / THB 25.10 GBP / USD 1.3208
AUD / EUR 0.6596 AUD / HKD 6.0278 NZD / USD 0.7157
AUD / GBP 0.5879 AUD / SGD 1.0565 NZD / EUR 0.6069
AUD / NZD 1.0878 AUD / FJD 1.5791 AUD / CNY 5.1680
AUD / CHF 0.7500 AUD / PGK 2.4636 All Ordinaries 5954.82
AUD / DKK 4.8992 EUR / USD 1.1642 Gold $US/oz 1281.57
AUD / SEK 6.3335 EUR / GBP 0.8928 Oil WTC $/b 52.00

 

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