Markets Today: 80

Auction clearance rates in Australia this weekend hit 80% – not just in Sydney and Melbourne but nationally and for the first time since early 2015.

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The track by American punk rockers Green Day is almost certainly referencing front-man Billie Jo Armstrong’s wife Adie (rhymes with 80, geddit?) rather than the fact auction clearance rates in Australia this weekend hit 80% – not just in Sydney and Melbourne but nationally and for the first time since early 2015. Sydney’s 85.6% preliminary clearance rate is a new YTD high. Melbourne cleared 81.8%.

Friday witnessed a fairly quiet end to what was a quite volatile week with both US and European stock indices closing virtually unchanged, the US dollar extending gains before giving back a little into the NY close and Treasury yields drooping to be lower on the week across the yield spectrum.

In stocks, competing influences from new highs for Microsoft but earnings related hits for GE and Daimler, while the two big M&A stories (AT&T’s bid for Time Warner and BAT for Reynolds) saw the target company stocks up but the predators down. The net result was the S&P500 closing -0.01% on the day (for a 0.4% gain on the week), the Dow -0.09% (flat on the week) and the NASDAQ +0.3% (+0.8%). The VIX finished the week at 13.34, down 0.4 on the day and down from 16.14 a week ago, a fall of 17%. Earlier European stock indices closed fairly flat.

In US rates the bear-steepening theme of recent weeks has been modestly reversed over the course of last week. On Friday US 2-year notes ended 0.4bp higher but are 1.2bps lower on the week and 10s -2.1bps to be -6.3bps on the week. 10-year German Bunds were 0.3bp higher for -5.2bps on the week and gilts +1.0bp to be -1.0bp on the week.

In FX, the US dollar was stronger across the board in G10 currency land with the exception of USD/JPY, -0.14% to Y103.80. DXY +0.39% to 98.695 for a gain of 0.7% on the week and its highest close since 2 Feb. BBDXY was +0.29% for a 0.1% gain on the week and its strongest close since 7 March.

CAD and NOK were Friday’s worse performers despite stronger oil, CAD’s fortunes not helped by weaker than expected retail sales and CPI data and which followed Wednesday’s admission by Bank of Canada governor Stephen Poloz that the Bank came close to cutting rates at its latest meeting. EUR/USD held the break below 1.09 to closer -0.41% at 1.0884 with GBP/USD also lower but less so, -0.16% to 1.2234 after an intra-day move back below 1.22.

AUD/USD spent some time sub-0.76 before closing -0.25% at 0.7608 (it’s re-opened a touch firmer. The NZD/USD fell by 0.46% to 0.7161.

In commodities, oil recouped a little of Thursday’s slippage, WTI +$0.40 to $50.85 and a gain of 50 cents on the week. Brent added $0.50 to $51.92 but is 3 cents down on the week. Gold added 30 cents to $$1266. The LMEX index lost 0.24% while iron ore was 10 cents lower at 58.72.

The bigger Australian commodity news was coal, with both steaming and coking coal benchmarks making new cycle highs. Coking coal +$3 to $232 a tonne and steaming coal shipped from Newcastle +$1.50 to $92.80.  The improvement in Australia’s term of trade and driven by the black stuff, thus continues.

Coming Up

In terms of offshore risk events, at the start of the week Bullard and Evans are the Fed speakers then the Fed enters lock-down in front of next week’s FOMC meeting.  Q3 GDP is the US data highlight.  In Europe, Eurozone ‘flash’ PMIs are today and the German Ifo survey are tomorrow, with the first cut of UK Q3 GDP on Thursday.

Here, the major focus will be on Wednesday’s CPI and whether it will be on the RBA’s forecast track.  We expect it will be, coming with a likely kick in headline inflation, thanks to fuel and some food.  NAB’s forecast is that headline CPI will be 0.8%, taking the annual CPI from 1.0% to 1.4%. This would be right on the RBA’s August inflation forecast track and something of a relief to the central bank.

As for the underlying measure of the CPI (the average of the trimmed mean and the weighted median), NAB’s forecast calls for an increase of 0.4% in the September quarter that would see the annual rate lift to 1.6% from 1.5%. Once again, such an outcome is entirely consistent with the official forecast track from the Reserve Bank and would be no spur to change the RBA’s inflation forecast from base effects as was the case after the release of the March quarter low print.

Such an outcome should quieten any thoughts the RBA could be minded to cut rates again as early as next Tuesday.

Otherwise quiet with Q3 merchandise trade prices due Thursday, guiding terms of trade expectations.  The HIA New Home sales report is due Friday. NZ is out for a public holiday today.

Overnight

On global stock markets, the S&P 500 was -0.31%. Bond markets saw US 10-years -2.09bp to 1.73%. In commodities, Brent crude oil -1.69% to $51.78, gold-0.2% to $1,266, iron ore +0.6% to $58.72. AUD is at 0.7612 and the range since Friday 5pm Sydney time is 0.759 to 0.7648.

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