It was a pretty measured night for markets, the Pound showing more stability (for now anyway), up around 0.5% from late yesterday afternoon levels in the wake of a story on legal advice to the UK Government that the UK Parliament will vote on the terms of exit (wasn’t that always likely to happen?) if not triggering Article 50.  (There still seems to be some ambiguity over whether triggering will/should require such approval.)  Also, the UK September CPI stronger than expected CPI, but not from a weaker Sterling according to the UK Statistical Office!

Kiwi also caught a bid tone after a 1.4% price rise from the overnight Global Dairy auction and yesterday’s somewhat higher than expected CPI.  The USD has been listless, with bond markets catching a bid tone from a somewhat underwhelming US core CPI and choppy oil markets that were also softer for a time.

Ahead of today’s welter of Chinese GDP and activity data, the AUD is trading this morning almost bang on where it was yesterday afternoon, at 0.7665.  Governor Lowe’s speech yesterday attracted a lot of wire coverage as you’d expect, but with only a half hint at best that next week’s CPI might put the November meeting in play for a potential easing.  He centred on several current aspects to the evolving economy story, one being the recent commodity price resilience and signs the terms of trade might be bottoming, previously a big headwind.  Elsewhere, he described the labour market as “mixed”, pointing out the still evident labour market slack and the much more common element of low wage rises that received a big airplay in his address.  Housing is not as contained as the Bank might have hoped, it seems.

Writing in the Fairfax press, seasoned RBA watcher Peter Martin has said that the Governor has “held out hope of further interest rate cuts to guard against further falls in inflationary expectations”.

The local press this morning seems to have focussed more on what he said in his Q&A on the effects that a Trump Presidency might have on global markets, the Governor saying that it would be more of a shock to financial markets than had been the case with Brexit.

We note in the AU commodity context that now steaming coal prices are accelerating, Newcastle December futures for example up another $4.50/t yesterday to $98.  That’s now more than doubled the low from earlier this year.  Met coal (at $227.75 and iron ore at $58.41/t were both virtually steady.  Base metals have been mixed overnight and the VIX index eased 1.15 to 15.06 with the equities higher, if off their intra-day peaks.

US headline CPI was right in line with expectations at 0.3%/1.5% (up from 0.2%/1.1%) but core CPI missed by a tenth, the annual rate easing to 2.2% from 2.3%.  The US NAHB Housing index for October was high at 63, exactly as expected, easing from 65.  US bond yields have eased, 2s down to 0.80 (-1.2bps) and 10s down 2bps to 1.75%  The probability of a Dec Fed hike eased to just under 70%.

Coming up

The focus shifts to China today with the release of its September quarter GDP and September month activity partials.  The market is looking for steady 6.7% annual GDP growth.  As for the September month partials, all are expected to be a tenth higher, industrial production expected to print at 6.4%, up from 6.3%, retail sales at 10.7% (from 10.6%), and fixed assets investment in year-to-date terms at 8.2% from 8.1%.

There is only second tier local data with the Westpac Leading Index and Skilled Vacancies, both for September.  For completeness, Japan also releases is All Industry Activity Index.

As far as scheduled data and policy events are concerned, there’s more than enough to keep the market engaged, with focus in the UK, US, and Canada.

The UK has its monthly labour market report with Chancellor Hammond testifying to the Treasury Committee.  The monthly US housing starts/permits is on the slate, along with a speech from San Francisco Fed President John Williams, and then the Fed’s Beige Book, to be filtered for regional views on business conditions with particular focus on wages and prices.

The Bank of Canada has its rate meeting tonight and the release of its Monetary Policy Report.  All economists surveyed in the Bloomberg survey expect the BoC overnight lending rate to be unchanged at 0.5%.

Overnight

On global stock markets, the S&P 500 was +0.42%. Bond markets saw US 10-years -2.28bp to 1.74%. In commodities, Brent crude oil +0.49% to $51.77, gold+0.5% to $1,263, iron ore +0.1% to $58.41. AUD is at 0.7663 and the range since yesterday 5pm Sydney time is 0.7659 to 0.7688.

Good luck.

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•  Markets Today: 19 October 2016(PDF, 101kb)

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