Australian Markets Weekly: 7 November 2016

Another big story for the Australian economy this year has been the strength in bulk export commodity prices.

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US election prime billing; bulk export prices still rising

  • Elections for the US President (and the Congress) rightly take top billing this week. The latest poll of polls from RealClearPolitics (see the polls here), including several released over the weekend, has Hillary Clinton at 46.6% and Donald Trump at 44.8%. Veteran pollster Nate Silver has Clinton at a 64.5% chance of winning in a two horse race and Trump at 35.5% (see that poll here). Since this morning’s disclosure by the FBI that the subsequent inquiry into Clinton’s emails has found no change to the FBI’s previous advice not to lay charges, there has been some swing back to the US dollar against the Euro, Swiss Franc, and the yen. The AUD has been steadier.
  • If it’s a clear outcome, then recent elections suggest a result could be known from around 3pm AEST Wednesday. A Clinton win would see a return to the “status quo”, the market then refocussing on a 15 December FOMC rate hike and near term USD support, including after Friday’s solid US non-farm payrolls. There is the possibility that a result may not be known for some time if there are very close results in key swing States. And there is also the possibility that neither candidate might accrue the necessary 270 Electoral College votes needed to win the Presidency in which event it would go to the House of Representatives for determination.
  • Friday’s RBA Statement on Monetary Policy revealed no material change to the Bank’s GDP and inflation forecasts, the RBA still indicating that its forecast for the trimmed mean inflation is for inflation to not get back to 2% until 2018.
  • The Bank also laid out its continuing concern about apartment oversupply. The Bank upgraded its assumption for the terms of trade on the back of surging coal prices, though not to the extent as the recent rally, as some of the temporary (and arguably less temporary) factors currently supporting prices are reversed.
  • In this Weekly, we delve further into the various factors behind soaring coal prices and steady-to-higher iron ore prices. A combination of structural, cyclical, and temporary/ weather events that have conspired to produce a perfect storm for coal prices. Increases in supply in response to very attractive prices will quell prices, given time.
  • Beyond focus on the US election this week, domestic markets see the release of the NAB Business Survey for October tomorrow and the W-MI Consumer Sentiment Wednesday. Offshore, the RBNZ is expected to cut rates on Thursday despite a spate of strong economic reports with focus in their language and cash rate forecasts.

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