Overnight Market & Currency Developments – From Our Bankers

Overnight Developments:

  • USD initially fell following Friday’s disappointing US October non‑farm payrolls report. Total nonfarm payroll employment rose less than expected in October (actual: 261k; consensus: 313k) and average hourly earnings was flat (consensus: +0.2% MoM). From a year ago average hourly earnings slowed to 2.4%, the slowest annual pace since February 2016. The unemployment rate ticked down to 4.1% (lowest rate since December 2000) largely because of a 0.4pts decline in the participation rate to 62.7%. But USD ended Friday’s overnight session on a firmer tone against most major currencies supported by a solid increase in the US ISM non‑manufacturing index. The US ISM non‑manufacturing index surged to 60.1 in October (consensus: 58.5, prior: 59.8), the highest level since August 2005, consistent with further robust expansion in US economic activity.
  • We expect the USD to consolidate some of its recent gains this week. There are no policy‑relevant US economic data releases this week. On the tax reform development front, the House ways and means committee begin on Monday to markup the Tax Cuts and Jobs Act which was unveiled last week. A markup session is where the House ways and means committee goes through the bill line by line and amends the package before advancing it to the full House for a vote (likely to be by end November). In its current form the Tax Cuts and Jobs Act will add US$1.5 trillion to the budget deficit over the next ten years. While this pro‑growth tax package is USD supportive, it is still unclear if the package will have enough Republican support to pass through Congress (House and Senate) by year end or Q1 2018. Republican Senator James Lankford warned on Sunday he would not be comfortable supporting a tax bill which raises US debt.
  • AUD/USD traded on the defensive during Friday’s overnight session on a firmer USD. AUD/USD faces downside risk later this week. On Tuesday, the RBA is widely expected to keep its policy rate at 1.50% and reiterate its neutral stance. But Friday’s RBA quarterly Monetary Policy Statement (SMP) can weigh on Australian interest rate expectations and undermine AUD. In the wake of both Q3 CPI measures undershooting RBA and market expectations there could be some modest trimming to the RBA’s near‑term underlying inflation forecasts in the SMP.

 

Overnight Data:

  • US non‑farm payrolls rose by 261k in October (forecast 310k) with another 90k added to history. Average earnings were flat (forecast +0.2%) and the jobless rate fell from 4.2% to 4.1%.  The ISM services index rose from 61.3 to 62.2 in October.  The trade deficit rose from US$42.8bn to US$43.5bn in September (forecast US$43.2bn).

 

Global Equity Markets:                                                                                                                  

  • European sharemarkets rose on Friday.  The pan‑European STOXX 600 index rose by 0.3%.  The German Dax rose by 0.3% to record highs and the UK FTSE rose by 0.1%, also to record highs.  However the Spanish IBEX lost 1%, dragged lower by the banking sector.  And shares in Societe Generale fell 4.1% after reporting a 15% fall in earnings from the investment banking division.  In London trade, shares in Rio Tinto fell by 0.5% and BHP fell by 1.2%.
  • US sharemarkets rose on Friday to record highs with shares in Apple leading the way.  Shares in Apple rose by 2.6% after posting better‑than‑expected earnings results and giving an upbeat forecasts for sales in the upcoming holiday season.  Investors also digested the mixed economic news.  The Dow Jones rose by 23 points or 0.1%.  The S&P 500 rose by 0.3% and the Nasdaq lifted by 49.5 points or 0.7%.  Over the week the Dow rose by 0.5%, the S&P 500 rose by 0.3% and the Nasdaq rose by 0.9%.

 

Commodities:                                                                                         

  • Global oil prices rose by over 2% on Friday.  According to oil services company, Baker Hughes, the number of oil rigs in operation in the US fell by eight ‑ the biggest weekly fall since May 2016.  The number of rigs in operation stood at 739 ‑ the lowest since May.  Brent crude rose by US$1.45 or 2.4% to US$62.07 a barrel.  US Nymex rose by US$1.10 or 2.0% to US$55.64 a barrel.  Oil prices rose around 3% over the week.
  • Base metal prices were mixed on the London Metals Exchange on Friday.  Copper, zinc and tin fell by up to 1.4% while other metals rose up to 0.9%.  Over the week metals generally rose around 1‑2% but nickel soared by 9.8% and tin lost 1.6%.
  • The gold futures price fell by US$8.90 or 0.7% to $1,269.20 an ounce.  The spot gold price was trading around US$1,269.50 an ounce in late US trade.  Over the week gold fell by US$2.60 or 0.2%.  Iron ore rose by US10 cents or 0.2% to US$59.40 a tonne.  Over the week iron ore rose by US70 cents or 1.2%.

 

Ahead:

  • In Australia, the ANZ job ads series is released.
  • In the US, no major economic data is expected.

 

Indicative Rates (Bank to Sell):

AUD / USD 0.7597 AUD / CAD 0.9611 USD / JPY 114.01
AUD / JPY 86.27 AUD / THB 24.47 GBP / USD 1.3070
AUD / EUR 0.6526 AUD / HKD 5.8684 NZD / USD 0.6908
AUD / GBP 0.5790 AUD / SGD 1.0358 NZD / EUR 0.5946
AUD / NZD 1.0987 AUD / FJD 1.5773 AUD / CNY 5.0432
AUD / CHF 0.7444 AUD / PGK 2.4153 All Ordinaries 6030.32
AUD / DKK 4.8465 EUR / USD 1.1467 Gold $US/oz 1270.23
AUD / SEK 6.3966 EUR / GBP 0.8888 Oil WTC $/b 55.58

 

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