Following the severe earthquake this morning in South Island NZ, the Wellington CBD is out of action including the BNZ Harbour Quays building. BNZ Markets will be operating from Auckland / Christchurch and DR sites.

The NZD fell by about half a cent at the open, but bear in mind  that sharp falls in the currency in the days following the February 2011 earthquake (5-6%) were reversed in subsequent weeks and months as anticipation of insurance payouts from overseas and the positive economic impact of the rebuilding of Christchurch were factored in.

Friday’s Veterans Day holiday, the closure of US bond markets and a bit of fatigue following the dramatic market moves of Wednesday and Thursday made for a quiet Friday. US stocks closed mixed (S&P down smalls but Dow and NASDAQ higher) while the US dollar continued to push ahead on the view that higher growth and higher inflation are headed America’s way in 2017 and on the view that a December Fed tightening is still highly likely.

The S&P lost 0.14% to 2164.45 but is still 3.8% up on the previous Friday’s close. Financials (on hope for the repeal of Dodd-Frank) and industrials (on hopes for major infrastructure spending) have driven the past week’s gains. The Dow was 0.21% higher Friday and the NASDAQ +0.54%. The VIX lost another 0.57 to 14.17 having been 22.51 the previous Friday. The Eurostoxx 50 ended Friday’s session down 0.54% (+2.6% on the week) and the German Dax 0.36% (led by a 4.6% gain for Deutsche Bank, its stock 20% up on the week).

US bond markets were closed Friday but in Europe the sell-off continued, Bunds +3.4bps to 0.308% and gilts +2.2bps to 1.364%. As a reminder, 10 year Treasuries ended Thursday night 37bps higher on the week at 2.15%.

In FX, the US dollar rally continued, gains now being dominated by falls for commodity currencies. NZD/USD -1.15% to 0.713, AUD/USD -0.88% to 0.7546 and USD/CAD +0.54% to 1.3542. Asia EM didn’t fare too badly, ADXY down just 0.02% (and -0.56% on the week). The narrow DXY gained 0.28% led by the further fall in EUR/USD (-0.35% to 1.0855).  USD/JPY gave back a tiny portion of its Wed/Thu rally, -0.17% to Y106.65 while Sterling continues to bask in the view a US/UK free trade could be readily achieved and that the factors that drove first Brexit then the election of Trump could soon befall one or more continental European countries. This, the argument goes, would play in favour of a softer than otherwise UK exit from the UK as Europe is forced to bend the UK (and US) way for its own salvation.  GBP/USD was +0.33% to $1.2596. Bloomberg’s broader BBDXY gained 0.2% for a rise of 2.6% on the week.

In commodities, in contrast to falls for gold (-$42 to $1,224) oil (WTI -$1.30 to 42.41 and Brent -$1.1 to $44.75) and exchange traded metals (LMEX -1.32%) iron ore added an eye-popping $5.7 to $79.81. A week ago it was $65.  Steaming coal out of Newcastle lost $1.55 but coking coal added another 50 cents to yet another fresh cycle high.

The US November University of Michigan preliminary consumer sentiment index at 91.6 was well up on the 87.2 final October read and 87.9 expected.  As – perhaps more – important, 5-10 year inflation expectations lifted to 2.7% from 2.4% (as did 1-year expectations).

CoreLogic’s weekend auction data shows the national clearance rate up again, to 77.5% from 73.6% on higher auction volumes.  Sydney again drove the move higher, clearing a preliminary 84.2% up from 78.8% last week but Melbourne was also up, to 77.2% from 76.1%.

Coming Up

The market will remain alert to any news on President-elect Trump’s policies and possible appointments. In this regard we may be due for something of a reality check; for example, according to the Wall Street Journal on Saturday the president-elect’s infrastructure plan largely boils down to a tax break in the hopes of luring capital to projects. He wants investors to put money into projects in exchange for tax credits totalling 82% of the equity amount and which industry experts say is likely to fall far short of adequately funding improvements to roads, bridges and airports.

China releases key October data today (13:00 AEDST) while the US highlight will be Fed Chair Yellen’s testimony to Congress on Thursday (10 other Fed speakers are also scheduled). Data-wise the main emphasis will be on US Retail Sales Tuesday and US CPI Thursday and in the UK CPI, Retail Sales and Labour Market data.

In Australia there are three big watch points, the first RBA Governor Lowe’s speech to CEDA on Tuesday evening (and the RBA Minutes earlier Tuesday), second, the Wage Price Index for Q3 on Wednesday, followed by the October Labour Force release on Thursday.

Friday night

On global stock markets, the S&P 500 was -0.14%. US bond markets were closed. In commodities, Brent crude oil -2.38% to $44.75, gold-3.3% to $1,224, iron ore +7.7% to $79.81. AUD is at 0.7534 and the range since Friday 5pm Sydney time is 0.7519 to 0.7628.

For full analysis, download report

•  Markets Today: 14 November 2016 (PDF, 112kb)

For further FX, Interest rate and Commodities information visit nab.com.au/nabfinancialmarkets

Disclaimer