Overnight Market & Currency Developments – From Our Bankers

Overnight Developments:

  • USD traded higher against most major currencies overnight and US 10‑year Treasury yields dipped by about 2bps to 2.31%.  There was no policy‑relevant US economic data released overnight but favourable US tax reform developments continue to support USD.  Kevin Brady, the Republican chairman of the tax writing House ways and means committee plans to bring an amended version of their Tax Cuts and Jobs Act for a full House vote next week.  Meanwhile, the Senate Finance Committee is expected to unveil their own tax plan on Thursday (Friday, Sydney time).
  • The US tax legislative process is progressing at an encouraging pace but it is still unclear if a final pro‑growth tax package will have enough Republican support to pass through Congress (House and Senate) by year‑end or Q1 2018.  Republican Senators Lankford and McCain warned this week they would be uncomfortable supporting a tax bill which raises US debt.  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.
  • AUD/USD edged down because of broad‑based USD strength and lower European and US equity markets.  There is no material Australian economic data release today so AUD will partly be driven by China’s October trade report (no set time).  Specifically, watch for China’s iron ore import volumes.  In our view, favourable global economic activity will continue to support commodity prices and underpin AUD.  Still, Friday’s RBA Statement on Monetary Policy (SMP) can weigh on Australian interest rate expectations and further undermine AUD in the near‑term.  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.

 

Overnight Data:

  • In US economic data, the JOLTS measure of job openings rose from 6.090 million to 6.093 million in September (forecast 6.091m).  And chain store sales were up 2.6% in the latest week on a year earlier, down from the 3.5% annual gain in the prior week.

 

Global Equity Markets:                                                                                                                  

  • European sharemarkets eased on Tuesday, dragged down by defensive stocks such as those in healthcare and consumer staples sectors.  Shares in BMW fell by 2.8% after its third‑quarter earnings fell by 5.9%.  But shares in German lighting maker Osram rose by 5.7% after investors embraced the company’s future plans.  The pan‑European STOXX 600 index fell by 0.5%.  The German DAX and the UK FTSE both fell by 0.7%.  In London trade, shares in Rio Tinto fell by 1.1% and BHP fell by 0.5%.
  • US sharemarkets eased on Tuesday, weighed down by weakness in financial and technology sectors but supported by defensive stocks.  Shares in Priceline fell by 13% after delivering a soft profit forecast.  With around an hour of trade to go, the Dow Jones was down by 24 points or 0.1%.  The S&P 500 fell by 0.2% and the Nasdaq eased by 25 points or 0.4%.

 

Commodities:                                                                                         

  • Global oil prices eased from 2‑year highs on Tuesday.  But traders watched growing tensions between Saudi Arabia and Iran.  The US Energy Information Administration forecast that US crude oil output will rise by 720,000 barrels per day (bpd) to 9.95 million bpd in 2018, up 40,000 barrels on the previous forecast released last month.  Brent crude fell by US58 cents or 0.9% to US$63.72 a barrel.  US Nymex fell by US15 cents or 0.3% to US$57.20 a barrel.
  • Base metal prices were generally weaker on the London Metals Exchange on Monday with prices down between 0.6‑2.1%.  But tin rose by 0.3%.   The gold futures price fell by US$5.80 or 0.5% to $1,275.80 an ounce.  The spot gold price was trading around US$1,275 an ounce in late US trade.  Iron ore fell by US40 cents or 0.6% to US$62.30 a tonne.

 

Ahead:

  • In Australia, no major economic data is due.  The Commonwealth Bank releases its first-quarter trading update.
  • In the US, the weekly mortgage finance data is issued.
  • In China, international trade data is expected.

 

Indicative Rates (Bank to Sell):

AUD / USD 0.7594 AUD / CAD 0.9628 USD / JPY 113.96
AUD / JPY 86.16 AUD / THB 24.43 GBP / USD 1.3166
AUD / EUR 0.6537 AUD / HKD 5.8656 NZD / USD 0.6906
AUD / GBP 0.5743 AUD / SGD 1.0344 NZD / EUR 0.5959
AUD / NZD 1.0982 AUD / FJD 1.5788 AUD / CNY 5.0428
AUD / CHF 0.7443 AUD / PGK 2.4050 All Ordinaries 6087.36
AUD / DKK 4.8543 EUR / USD 1.1439 Gold $US/oz 1276.38
AUD / SEK 6.3642 EUR / GBP 0.8802 Oil WTC $/b 57.14

 

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