Markets Today: Riders on the storm

Well, not a storm, but the AUD is riding higher after much stronger-and-expected GDP for the December quarter.

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Well, not a storm, but the AUD is  riding higher after much stronger-and-expected GDP for the December quarter, the surprise (relief) being not only the 0.6% quarterly print but annual growth with an unexpected “3” handle. The AUD immediately jumped on the release to above 7220, then traded around that level through the rest of Asia session and into London before for climbing higher. The Aussie is now trading at its session highs, knocking on the door of $0.73, a level not seen since the start of this year this year’s episodes of elevated global volatility unfolded. Iron ore, base metals and gold were all higher as well.  Oil was little changed

The spot Bloomberg US dollar index has lost a little ground overnight, despite quite supportive words from moderate Fed President John Williams speaking to a strong US economy script and a none-too-damaging Fed Beige Book that’s been released in the last hour. Data released overnight was very much second tier with the UK construction PMI at 54.2 in Feb and the US ADP employment report ahead of Friday’s payrolls revealing no material change at 214K, up slightly from a revised 193K in January.

Elsewhere in the currency space, Sterling has had a better night, after previously having been sold on Brexit fears.  BoE Deputy Governor Cunliffe said that he was not able to predict the impact of Brexit, clearly wanting to stay away from the politics ahead of the referendum but also not coming to any hasty judgements on the complexity of teasing out economic and market effects.

Speaking on the US economy, the usually moderate John Williams said that the US economic outlook hasn’t changed more than a fraction, that he sees no sign of fragility in the US economy, that “we don’t want to run a hot economy for too long” and that the US is able to “power through” headwinds from abroad. There’s not too much concern in any of that. He also observed that he would be in favour of using forward guidance and more QE if needed to support the economy rather than negative rates. He declined to comment on the March meeting but made the general point that the Fed is on a path of raising rates.  US bond yields edged a little higher overnight.

This morning’s Fed Beige Book released ahead of the March 17 FOMC meeting pointed out that most districts were growing at either “moderate” or “modest” rates (a fine distinction that one), two districts reported flat business conditions and, in this report, one district – Kansas City – reported a modest decline. In net terms, pretty much the same to marginally softer.

Coming Up

With the global manufacturing PMI data set for this month now dispensed with, the focus today and tonight shifts to the non-manufacturing counterpart indexes, especially the US ISM non-manufacturing index tonight.

First up today however we have NZ Q4 building work done at 8:45 AM, followed at 9:30 by the AIG PSI services index for Australia February, then NZ commodity prices at 11.  The main focus will be on the AUD trade balance report for January is at its usual 11:30 AM time slot, coming out with the NAB online retail sales index for January ahead of the ABS figures tomorrow. NAB and the market consensus looks for a still hefty trade deficit that’s expected to only improve only marginally from $3.54 billion in December to $3.2 billion.  The threat of Cyclone Stan closed Port Hedland and disrupted iron ore exports but an assumed step up in LNG shipments from the new Queensland projects is also expected. A surprise would be a much lower deficit.  Also today we have the unofficial Caixin China services/ composite PMIs at 12:45 PM ahead of the Japanese counterpart at 1 PM and any revisions tonight to Eurozone’s preliminary estimate of 53 and 55.1 for Germany. The US ISM is expected to ease a little further to 53 from 53.5, coming with no material change expected in weekly jobless claims, expected to be 270K from 272K and payrolls Friday.

Overnight

On global stock markets, the S&P 500 was -0.10%. Bond markets saw US 10-years +2.10bp to 1.85%. On commodity markets, Brent crude oil +0.27% to $36.91, gold+0.9% to $1,242, iron ore +2.1% to $52.50. AUD is at 0.7298 and the range was 0.7165 to 0.7299.

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