Overnight Market & Currency Developments – From Our Bankers

Overnight Developments:

  • USD held onto yesterday’s modest gains.  The USD was supported by a 1bp lift in the U.S. two year bond yield to 1.71% – the highest level in 9 years.  FOMC member Mester expects US inflation will hit 2% sometime next year but not as soon as Q1.  US industrial production surged by 0.9% in October because of the recovery from hurricanes in August.  The Philly Fed business index eased modestly but is still well above average.  The Philly index provides an early read on the already strong manufacturing ISM that is released next month.
  • The House of Representatives passed their version of the tax reform early this morning.  According to the Financial Times, Republicans on the Senate finance committee are rushing to approve their own legislation before the end of the week, paving the way for a full vote on the Senate floor likely in early December.  Once both the House of Representatives and the Senate have passed their tax reform bills, a consensus will need to be formed into a single bill.
  • AUD/USD has stabilised despite some volatility around yesterday’s release of the October labour force report.  Australian employment increased by a paltry 3,700.  However, the unemployment rate decreased from 5.5% to 5.4% because the participation rate decreased to 65.1%.
  • The Australia‑US two year bond spread eased further to a low of only 8bps.  The last the spread traded that low was on 12 January 2001.  While we see further near‑term downside, and believe AUD/USD could decline and test the technical support around 0.7473, we are not yet getting bearish AUD.  We do not believe AUD is headed significantly lower, as published yesterday.

 

Overnight Data:

  • In US economic data industrial production rose by 0.9% (forecast: +0.5%) in October ‑ a 6 month high ‑ after rising by a revised 0.4% in September. The National Association of Homebuilders Housing Market Index increased by 2 points to 70 points in November, above forecasts for 68 points. The number of initial claims for state unemployment benefits increased by 10,000 to 249,000 (forecast: 235,000) for the week ended November 11. Import prices rose by 0.2% (forecast: +0.4%) and export prices were flat (forecast: +0.4%) in October.

 

Global Equity Markets:                                                                                                                  

  • European shares rebounded on Thursday, snapping their longest losing streak since October 2016. The pan‑European STOXX 600 index rose by 0.8% and the German Dax increased by 0.6%.
  • US share markets headed for the biggest gain in two months amid a rally in technology shares and rising odds of corporate tax cuts. US lawmakers in the House of Representatives passed the tax reform bill on Thursday. An hour before the close of trade the Dow Jones was up by 198 points or 0.9%. The S&P 500 was up by 0.9% and the Nasdaq increased by 92 points or 1.4%.

 

Commodities:                                                                                         

  • Global oil prices fell for the fifth consecutive day on Thursday as rising US production and inventories threaten to undermine the rally sparked by tightening global supply as a consequence of OPEC and Russia’s curbs on output. Brent crude fell by US53 cents or 0.9% to US$61.34 a barrel. US Nymex fell by US37 cents or 0.7% to US$55.33 a barrel.
  • Base metal prices declined on Thursday despite news of a $US47 billion boost to China’s money supply. Nickel was the worst performer, down 2.9%.
  • The gold futures price rose by US50 cents or flat at $1,278.20 an ounce. The spot gold price was trading around US$1,279 an ounce in late US trade. Iron ore rose by US60 cents or 1.0% to US$61.80 a tonne.

 

Ahead:

  • In Australia, new vehicle sales and tourist arrivals data is released.
  • In the US, data on housing starts and building permits are released.

 

Indicative Rates (Bank to Sell):

AUD / USD 0.7540 AUD / CAD 0.9536 USD / JPY 113.02
AUD / JPY 84.83 AUD / THB 24.06 GBP / USD 1.3192
AUD / EUR 0.6389 AUD / HKD 5.8273 NZD / USD 0.6851
AUD / GBP 0.5690 AUD / SGD 1.0214 NZD / EUR 0.5820
AUD / NZD 1.0992 AUD / FJD 1.5714 AUD / CNY 4.9988
AUD / CHF 0.7344 AUD / PGK 2.3955 All Ordinaries 6023.54
AUD / DKK 4.7431 EUR / USD 1.1621 Gold $US/oz 1278.83
AUD / SEK 6.3217 EUR / GBP 0.8923 Oil WTC $/b 55.09

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