Overnight Market & Currency Developments – From Our Bankers

Overnight Developments:

  • USD and US 10-year Treasury yields were not materially impacted during Friday’s overnight trading session following poor US August economic activity. The US retail sales control group (which feeds into GDP calculations) and industrial production contracted sharply in August because of the hurricane disruptions.

This week, we anticipate the USD to consolidate. The FOMC is widely expected to leave the target range for the federal funds rate between 1.00-1.25% at Thursday’s meeting. Expectations are also for the FOMC to begin reducing the Fed’s balance sheet. In its Summary of Economic Projections, the FOMC will likely lower their near-term GDP growth projection to account for the fallout from Hurricanes Harvey and Irma. More importantly, we anticipate the FOMC to lower its US core PCE deflator projections and longer term median Fed funds rate estimate. This will weigh on US interest rate futures and limit USD upside.

Nonetheless, recent political developments have raised the prospect that US pro-growth tax reforms may be possible by year-end. This is USD supportive. A proposed tax legislation is expected to be released early next week. By then we will have a better idea of whether tax reform will be possible by year-end. An improving US fiscal agenda (more precisely cuts to the US company tax rate) is an upside risk to our lower USD view.

  • AUD/USD has consolidated. AUD/USD will be guided by offshore developments this week given the lack of local Australian economic data. The RBA September meeting minutes (Tue) and RBA Governor Philip Lowe’s speech (Thu) may generate some AUD volatility. The title of Lowe’s speech is “The Next Chapter”.

 

Overnight Data:

  • In US economic data, retail sales fell by 0.2% in August (forecast +0.1%). Excluding autos, sales rose 0.2% (forecast +0.5%). Industrial production fell 0.9% in August (forecast +0.1%). Consumer sentiment fell from 96.8 to 95.3 in September. The New York Federal Reserve manufacturing index fell from +25.2 to +24.4 in September.

 

Global Equity Markets:                                                                                                                  

  • European sharemarkets eased on Friday as investors responded to news of another North Korean missile test.  Weaker US economic data added to the negative sentiment. Financials fell but retail stocks rose. The Euro STOXX 600 index fell by 0.3% with the German Dax lower by 0.2% and the UK FTSE lost 1.1%.
  • US sharemarkets rose on Friday with the Dow Jones and S&P 500 indexes both at record highs. Investors seemingly shrugged off weaker (hurricane‑affected) economic data as well as news of the North Korean missile test. Technology stocks led the gains. The Dow Jones rose by 65 points or 0.3% to record highs with the S&P 500 up 0.2% to a record high of 2,500 points. The Nasdaq rose by 19 points or 0.3%. Over the week the Dow rose by 2.2%, S&P 500 rose by 1.6% and Nasdaq rose by 1.4%.

 

Commodities:                                                                                         

  • Global oil prices were little‑changed on Friday. Investors digested the week’s generally positive forecasts of oil demand from OPEC and the International Energy Agency. Refineries on the US Gulf Coast continue to restart after recent hurricanes and this may lead to more demand for crude. Brent crude rose by US15c or 0.3% to US$55.62 a barrel. US Nymex was unchanged at US$49.89 a barrel. Over the week Brent rose US$1.84 or 3.4% and Nymex rose by US$2.41 or 5.1%.
  • Base metal prices rose up to 2.4% on the London Metal Exchange on Friday with lead up the most. But nickel lost 1% and aluminium fell by 0.6%. The December Comex gold futures price fell by US$4.10 or 0.3% to US$1,325.20 per ounce. The spot gold price was trading around US$1,319 an ounce in late US trade. Iron ore fell by US$2.50 or 3.4% to US$70.90 a tonne. Over the week iron ore fell US$2.80 or 3.8%.

 

Ahead:

  • In Australia, new vehicle sales data is expected.
  • In China, data on house prices is released.
  • In the US, the NAHB housing market sentiment index is released with capital flows data.

 

Indicative Rates (Bank to Sell):

AUD / USD 0.7947 AUD / CAD 0.9614 USD / JPY 111.07
AUD / JPY 87.91 AUD / THB 25.59 GBP / USD 1.3587
AUD / EUR 0.6643 AUD / HKD 6.1542 NZD / USD 0.7288
AUD / GBP 0.5825 AUD / SGD 1.0683 NZD / EUR 0.6106
AUD / NZD 1.0890 AUD / FJD 1.6088 AUD / CNY 5.2067
AUD / CHF 0.7490 AUD / PGK 2.5221 All Ordinaries 5755.84
AUD / DKK 4.9328 EUR / USD 1.1786 Gold $US/oz 1320.03
AUD / SEK 6.3215 EUR / GBP 0.8785 Oil WTC $/b 49.85

 

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