Markets Today: Big Jet Plane

The song by Angus and Julia Stone (my absolute favourite Sydney band) made number 1 on Triple J’s Hottest 100 […]

By

The song by Angus and Julia Stone (my absolute favourite Sydney band) made number 1 on Triple J’s Hottest 100 songs of 2010 and was responsible for propelling them on to the international stage.

Big jet planes were also responsible for the 4.8% jump in US October durable goods orders reported last night and which together with a jump in the final reading of the University of Michigan’s November Consumer Sentiment Index is responsible for the latest uptick in US bond yields and refresh to the US dollar uptrend following an early-week consolidation phase.

Looking though the Boeing-related surge in headline durable goods orders, encouragement was drawn from the better than expected ex-transport number of +1.0% against 0.2% expected and with a small upwards revision to September also reported. As for the consumer sentiment data, the significance is that the final readings of 93.8 will have been based on survey responses received after news of Donald Trumps’ election victory.  So being up on the 91.6 preliminary reading, it signifies either that U.S. consumers collectively view Trump’s election as good news for them, or perhaps it just means that the removal of uncertainty about the election outcome has seen confidence pick-up. Either way it looks to be good news for personal consumption in the rest of Q4 and into early 2017.

FOMC minutes from the November 1-2 meeting have also just been released but at first glance contain nothing that should surprise anyone. Indeed, they have left near-certain expectations for a December 14 rate rise firmly intact. In fact, the implied probability of  December move has risen to 104% (the literal meaning of which is that market now ascribe a 4% change to the FOMC raising rates by 50bps rather not 25bps next month. That’s not going to happen).

Other U.S data saw New Home Sales disappoint expectations at -1.9%, the Markit US manufacturing PMI lift slightly to 53.9 from 53.4 and weekly jobless claims rose to 251k from the exceptionally low 233k previously (much as expected).

In Europe, ‘Flash’ Eurozone PMI data came in a bit stronger than expected (54.1 for the Composite reading up from 53.3) while the UK Autumn Statement revealed a much bigger than expected jump in expected borrowing needs over the next 5 years of £122bn, £58bn of which are ‘Brexit’ related. So much for that £350mn extra per week that UKIP claimed could be funnelled into the NHS. UK gilt yields have jumped on this news. The British pound is as touch firmer but this look more related to ongoing weakness in the Euro and which has seen an extension of EUR/GBP weakness.  On the Euro, we’d note that incoming opinion polls continue to point a defeat for Italian PM Renzi’s constitutional reform agenda in the 4th December referendum.

Elsewhere it is the JPY that remain the whipping boy for US dollar strength, as it should be with US yield rising while the BoJ continues to anchor JGB yields at zero or below out to 10 years.  Also to note is a lurch higher in the renminbi last night, with the onshore USD/CNH rate pushing 6.95 and the onshore USD/CNY almost kissing 6.92. This is still consistent with USD strength but this morning’s PBoC fix will be interesting nevertheless.

The AUD/USD meanwhile hasn’t done too badly, just 0.24% lower at 0.7389 and so generally firmer on the crosses. In this regard, following a jump in Dalian iron ore futures yesterday, the China 62% fines average import price has risen 97 cents to $75.87, bucking the trend of (mostly) weaker commodity prices elsewhere as the dollar continues its march higher. Gold is off another $25 while oil prices are a touch weaker with no new news on prospects or otherwise for an OPEC production agreement next week.

Yesterday Australian Q3 construction work done printed at -4.9% q/q in the September quarter, against expectations of a 1.6% decline (see Chart of the Day). The detail reveals the expected decline in engineering investment (-3.8% q/q) associated with the mining investment unwind. What the details also show are surprisingly sharp declines for residential building (3.1% q/q) and non-residential building (-10.9%).  This presents downside risks to our preliminary Q3 GDP expectation of 0.1% q/q (data due 7th December).

Coming Up

US Thanksgiving promises to make for a limp into the weekend, with little on the scheduled calendar in the rest of the world (or here in Australia) to get anyone’s pulses racing. The German IFO survey of business condition and confidence is pretty much the only data point of interest.

Oil prices will remain a point of focus as we head toward next Wednesday’s OPEC meeting. So too will USD/JPY with Tokyo returning from holiday, and in China this morning’s PBoC CNY fix will make headlines one way or the other.

Overnight

On global stock markets, the S&P 500 is -0.06%.  10-year US bond yields +4.69bp to 2.36%. In commodities, Brent crude oil -0.33% to $48.96, gold-1.9% to $1,188, iron ore +1.3% to $75.87. The AUD is at 0.7389 and the range since yesterday 5pm Sydney time is 0.7380 to 0.7444.

For full analysis, download report

More from NAB:

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

Disclaimer