Markets Today: Bungee jumping – Asia EM style

AUD was the best performing G10 currency on Friday, and GBP the worse, the latter initially suffering on some dismal UK trade figures and which contrast starkly with the Eurozone’s current account surplus status.

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AUD was the best performing G10 currency on Friday, and GBP the worse, the latter initially suffering on some dismal UK trade figures and which contrast starkly with the Eurozone’s current account surplus status.

Currencies were more lively that equities or bonds, with further strong gains for some of the most beaten up Emerging Market currencies of the past few months. The Indonesian rupiah added another 3.37% to be 9% higher on the week, and Malaysia 2.6% to be 6.9% up on the week. In index terms the narrow DXY dollar index ended -0.53% at 94.81 and the broader BBDXY -0.35%.

AUD/USD added 1.05% over the 24 hours through to the NY close to 0.7336 and closed very close to the highs (0.7344). “4pm-fix” and other real money demand was evident. In contrast the NZD was up only 0.28% up on the day finished well shy of its intra-day high of 0.6720, at 0.6686.
US equities managed small gains Friday, the S&P500 finishing +0.07%, the Dow +0.2% with the VIX slipping down by 0.34 to 17.08. Earlier the Eurostoxx 50 finished +0.79% and the DAX +1.04%. No sign here of investors shorting the Euro alongside renewed buying of equities (EUR +0.74%).

Treasuries were mixed, 10s losing 1.6bps to 2.0881% but 2s finishing in NY 0.4bp up at 0.6370%. In commodities gold added $17 to $1156, so maintaining the current strong negative correlation with overall USD performance. Oil prices were narrowly mixed with no strong reaction to news that the US House of representatives had voted 261-159 to repeal the 40-year ban on oil exports. Even if the bill clears the Senate (it may well not) it remains under threat of Presidential veto, and the House vote does not command the two-thirds majority necessary to override. Iron ore was up just 4 cents to $56.01 but the LMEX index leapt by 3.87%.

Economic news of note was limited to Canadian employment and UK trade. Canada’s September labour market figures showed a 12k rise in employment (10.0kE, 12.0kP) but all driven by part time (full time -61.9k, part-time +74.0k). The unemployment rate rose to 7.1% from 7.0% and 7.0% expected.

Very poor UK trade figures saw the overall (goods and services) deficit at £3.27bn (-£2.15bn E) with July revised to -£4.4bn from -£3.4bn). This was led by visible trade where the deficit came in at £11.15bn not the £9.9bn expected and with July revised to -£12.2bn from -£11.1bn originally reported.

CoreLogic RP Data on Sunday reported a sharp step up in auction activity after the prior Saturday’s Grand Finals day and Labour Day long weekend saw just 841 properties on offer. 2,903 properties came to market on Saturday, with a preliminary clearance rate of 72.0 up from a final 68.2 last week, with Sydney clearing a preliminary 72.8% up from 69.9% and Melbourne 74.1% up from 73.1%.

Plenty of Fed-speak on Friday and over the weekend where the IMF’s Autumn meetings were taking place in Lima.

Fed Vice-Chair Stan Fischer told CNN the Fed will raise rates this year providing slower global growth doesn’t undermine forecasts for higher inflation.

NY Fed president Bill Dudley told CNBC he still forecasts a rate hike this year, but stressed “it’s a forecast and we’re going to get a lot of data between now and December, so it’s not a commitment”.
Richmond Fed president Lacker (September’s FOMC meeting dissenter) told Bloomberg that “we’re there” (full employment) and that “pushing on to wring more slack out – there are some risks associated with that”
FOMC dove Charles Evans said a Fed Funds Rate “below 1%” could be appropriate by end-2016, while Atlanta Fed president Dennis Lockhart says he still sees ‘lift-off’ in either October or December despite a touch more ‘downside risk’ to the economy given the international slowdown and recent employment data.

On Saturday ECB President Draghi further dampened hope for a step up in the intensity of QE, saying “we are satisfied with QE, as it has met and even surpassed our initial expectations”. He said it will take longer to get inflation up to 2% but “that is largely because of a drop in oil prices”.

Coming Up

Plenty of data and other event risk this week after what will be a quiet start (Columbus Day in the US, and Japan is out for Sports Day – I want one of those). We get into the thick of the US 3rd quarter reporting season with JPM, Intel and Johnson & Johnson Tuesday, BofA and Wells Fargo Wednesday and Citigroup and Goldman’s on Thursday.

China trade numbers on Tuesday’s could be a big swing factor for EM in general, while Chinas loan data is due anytime from today. In the US CPI, retail sales a production data due, though the Fed’s Beige Book on Wednesday could be one of the more interesting releases.

Locally, NAB’s business survey is tomorrow plus a speech from RBA’s Lowe, then labour market data on Thursday.

Overnight

• On global stock markets, the S&P 500 was +0.10%. Bond markets saw US 10-years -1.59bp to 2.09%. On commodity markets, Brent crude oil -0.75% to $52.65, gold+1.0% to $1,156, iron ore +0.1% to $56.01. AUD is at 0.7324 and the range since Friday’s local close was 0.7280 to 0.7344.

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