Overnight Market & Currency Developments – From Our Bankers

Overnight Developments:

  • USD eased a bit during the overnight session, US 10‑year Treasury yields dipped by about 1.5bps to 2.316% and the S&P500 is up just 0.15%. There were no policy‑relevant US economic data released overnight. USD virtually ignored confirmation that president of the Federal Reserve Bank of New York and permanent voting member on the FOMC, William Dudley, will retire in mid‑2018. The Board of the Federal Reserve Bank of New York will choose Dudley’s replacement. There are also two additional vacancies for Governor on the Federal Reserve Board awaiting President Trump’s nomination, including the vice chair of the Federal Reserve to replace Stanley Fischer. We do not expect the vacancies at the Fed to impact monetary policy.
  • Our FOMC view has been for two more increases in the target range for the Funds rate in December 2017 and June 2018 to give a terminal rate of 1.75% (upper bound).  However, because of the rising prospect of a more pro‑growth US fiscal policy stance we changed our baseline view to now include an additional increase in the Funds rate in March 2018 to give a terminal rate of 2.00% (upper bound).  The most likely risk to our new baseline is an additional increase in the Funds rate in September 2018 to 2.25%. Our new forecast for the Funds rate is modestly more aggressive than current market pricing, implying upside risk to the USD.
  • AUD and CAD rose against USD overnight supported by higher commodity prices. Iron ore prices rallied on firmer steel prices and crude oil prices surged to near a two‑year high.  As we pointed out recently, oil and gas prices are a more important influence on AUD.  Expectations that OPEC members will extend supply cuts a further nine months at their 30 November meeting and Saudi Arabia’s crackdown supported the up‑leg in crude oil prices. Favourable global economic activity will continue to favour commodity prices and underpin AUD, and CAD.
  • Today, the RBA is widely expected to keep its policy rate at 1.50% and reiterate its neutral stance (2:30pm Sydney). As such we do not anticipate much of an AUD reaction. But Friday’s RBA quarterly Monetary Policy Statement (SMP) can weigh on Australian interest rate expectations and undermine AUD. In the wake of both Australian 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.

 

Global Equity Markets:                                                                                                                  

  • European sharemarkets were little‑changed on Monday.  Investors were encouraged by economic data with the “flash” IHS Markit’s composite manufacturing index revised to 56.0 in October, well above the 50 line that suggests expansion.  Higher oil prices helped the energy sector.  But there was some disappointment on corporate and earnings news.  The pan‑European STOXX 600 index rose by 0.1%.  The German DAX lost 0.1% from record highs and the UK FTSE rose by less than 0.1% to record highs.
  • US sharemarkets edged higher on Monday.  Tech shares rose after Broadcom made an unsolicited US$103 billion bid for Qualcomm.  Shares in Twenty‑First Century Fox rose 7.5% on news reports indicating that Disney held talks to buy most of Fox’s assets.  With just over an hour to go the Dow Jones was up by 30 points or 0.1%.  The S&P 500 rose by 0.2% and the Nasdaq lifted by 21 points or 0.3%.

 

Commodities:                                                                                         

  • Global oil prices rose by around 3.0‑3.5% on Monday after Saudi Arabia’s Crown Prince Mohammed bin Salman cemented his power over the weekend with an anti‑corruption crackdown.  The Saudi Energy Minister also expressed “satisfaction” with a production‑cutting deal between OPEC and other key oil producers such as Russia.  Brent crude rose by US$2.20 or 3.5% to US$64.20 a barrel.  US Nymex rose by US$1.71 or 3.1% to US$57.35 a barrel.
  • Base metal prices were generally higher on the London Metals Exchange on Monday with prices up between 0.4‑1.8%.  But aluminium lost 0.7% and tin fell by 0.6%.
  • The gold futures price rose by US$12.40 or 1.0% to $1,281.60 an ounce.  The spot gold price was trading around US$1,281 an ounce in late US trade.  Iron ore rose by US$3.30 or 5.6% to US$62.70 a tonne.

 

Ahead:

  • In Australia, the Reserve Bank Board meets to decide interest rate settings.  Weekly consumer confidence data is due.
  • In the US, the JOLTS job openings index is released with consumer credit and weekly chain store sales data.
  • In China, data on foreign exchange reserves is expected.

 

Indicative Rates (Bank to Sell):

AUD / USD 0.7641 AUD / CAD 0.9633 USD / JPY 113.69
AUD / JPY 86.49 AUD / THB 24.56 GBP / USD 1.3176
AUD / EUR 0.6564 AUD / HKD 5.9002 NZD / USD 0.6944
AUD / GBP 0.5774 AUD / SGD 1.0392 NZD / EUR 0.5980
AUD / NZD 1.0989 AUD / FJD 1.5866 AUD / CNY 5.0687
AUD / CHF 0.7470 AUD / PGK 2.4288 All Ordinaries 6027.19
AUD / DKK 4.8742 EUR / USD 1.1462 Gold $US/oz 1281.98
AUD / SEK 6.4015 EUR / GBP 0.8813 Oil WTC $/b 57.29

 

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