Overnight Market & Currency Developments – From Our Bankers

Overnight Developments:

  • USD consolidated overnight. U.S. 10‑year Treasury yields increased by 1bp to 2.37%. US Q3 employment costs (ECI) increased solidly by 0.7% in line with consensus expectations.  Yesterday’s Chicago PMI and Dallas PMI are the final regional PMIs ahead of the national manufacturing ISM (12.45am Sydney).  We expect the ISM to ease slightly to 59.7pts in October from 60.8pts in September. The FOMC is widely expected to make no changes to policy tomorrow following the September decision to gradually pare back its balance sheet (5am Sydney).  The risk is a hawkish statement and a stronger USD.  Guided by public comments from FOMC voters, we expect the FOMC to increase the Funds rate at its December meeting.
  • There have been no new developments in US tax reform though a detailed tax plan is expected to be released by Republican Kevin Brady tonight. At this stage, it is unclear whether the charging of three former Trump advisers will distract the administration from its tax efforts. White House officials confirmed that President Donald Trump will announce his choice for Fed Chair on Thursday (US time). John Taylor or Kevin Warsh as Fed Chair would be the most bullish for the USD. In contrast, if Jerome Powell or Janet Yellen are selected, the USD will likely face some intra‑day headwinds.
  • AUD/USD is still struggling to push higher. Yesterday’s China manufacturing PMI for October was slightly weaker than consensus expectations (51.6pts versus 52.0pts expected). Australia’s “citizenship saga” continues. The Senate president, Stephen Parry, a Liberal senator for Tasmania, may be a British citizen. If confirmed, we expect Parry to leave the Senate and be replaced by Richard Colbeck, the next Liberal on the Senate ticket. In other words, the balance of power between parties in the Senate does not change. We do not expect the citizenship issue to be a major driver of AUD. Instead, the US developments noted above will be the major driver of AUD over the next few days. Today’s CBA Manufacturing PMI will provide the first reading on the Australian economy in October.

 

Overnight Data:

  • In US economic data, the employment cost index rose 0.7% in Q3 as expected. The Case-Shiller measure of home prices rose by 0.5% in August (forecast +0.3%) to be up 5.9% over the year. Consumer confidence rose from 120.6 to a 17‑year high of 125.9 in October (forecast 121.0). And the Chicago purchasing managers index rose from 65.2 to 66.2 in October (forecast 61.0).

 

Global Equity Markets:                                                                                                                  

  • European sharemarkets lifted to fresh 5‑month highs on Tuesday. The Spanish IBEX index rose 0.7% after Catalonia’s leader, Carles Puigdemont, agreed to a snap election called by Spain’s central Government in the hope of resolving the independence crisis. The European STOXX 600 index rose by 0.3%. The German market was closed for a holiday. The UK FTSE rose by just 0.1%.
  • US sharemarkets rose on Tuesday. Shares of Mondelez rose by 5.4% after issuing a better‑than‑expected earnings report. And shares in Kellogg’s rose 6.2% after announcing the first sales increase in more than two years. But shares in clothing maker Under Armour fell by 23.7% after cutting sales and revenue forecasts. The Dow Jones rose by 28.5 points or 0.1% with the S&P 500 up 0.1%. And the Nasdaq lifted almost 29 points or 0.4% to record highs.

 

Commodities:                                                                                         

  • Global oil prices rose by 0.4‑0.8% on Tuesday. Prospects of higher US oil exports dampened investor sentiment. But there is the ongoing expectation that OPEC and non‑OPEC oil producers may extend the current production agreement. Brent crude rose by US47 cents or 0.8% to US$61.37 a barrel. US Nymex rose by US23 cents or 0.4% to US$54.38 a barrel. Oil prices rose around 5‑6% in October.
  • Base metal prices were mixed on the London Metals Exchange on Tuesday. Aluminium, copper and tin fell by up to 0.3% while other metals rose by up to 5.4% with nickel leading the gains. The gold futures price fell by US$7.20 or 0.6% to $1,270.50 an ounce. The spot gold price was trading around US$1,271 an ounce in late US trade. Iron ore rose US40 cents or 0.7% to US$58.40 a tonne.

 

Ahead:

  • In Australia, the Commonwealth Bank PMI for manufacturing is released with the CoreLogic home price series.
  • In the US the Federal Reserve announces the rates decision. The ADP employment series is released with the ISM manufacturing report.

 

Indicative Rates (Bank to Sell):

AUD / USD 0.7607 AUD / CAD 0.9724 USD / JPY 113.67
AUD / JPY 86.09 AUD / THB 24.54 GBP / USD 1.3285
AUD / EUR 0.6516 AUD / HKD 5.8725 NZD / USD 0.6848
AUD / GBP 0.5701 AUD / SGD 1.0353 NZD / EUR 0.5880
AUD / NZD 1.1094 AUD / FJD 1.5781 AUD / CNY 5.0474
AUD / CHF 0.7436 AUD / PGK 2.4176 All Ordinaries 5976.40
AUD / DKK 4.8381 EUR / USD 1.1496 Gold $US/oz 1271.95
AUD / SEK 6.3595 EUR / GBP 0.8766 Oil WTC $/b 54.31

 

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