Markets Today: Friday on my mind

Though there isn’t too much to say about last night’s markets and after the local market yesterday was, within 15 minutes of the China data, already checking out the coming weekend’s weather forecast.

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Though there isn’t too much to say about last night’s markets and after the local market yesterday was, within 15 minutes of the China data, already checking out the coming weekend’s weather forecast.

US stocks have been recovering in the past two hours having been weaker during the European afternoon/New York morning.  Here, a 7% fall in Morgan Stanley’s stock after the investment bank missed both its earnings and revenue estimate was compounded by falls in the basic materials sector off the back off fresh falls in commodity prices led by oil.  WTI crude is off $1.18 and Brent -$1.75, alongside which copper and aluminium are both 1.5% lower and iron ore -$1.38 or 2.5%.

Last night’s US data in the form of the NAHB Housing Market Index (strong) gave a small lift to US Treasury yields and lifted the US dollar. The narrow DXY dollar index is about 0.5% higher while 10 year Treasury yields, having rallied from 2.02% to 2.05% after the data, have since traded back to 2.03%, little changed on our local close.

While local markets yesterday appeared to take China’s 6.9% Q3 GDP print at face value and largely ignored the September activity readings, this was not the case offshore and where the further slowdown in industrial output and fixed asset investment – both of which came in weaker than expected – look to have resonated much more. We had thought yesterday that these should be the more influential numbers; even if the strength of retail; sales and indications form the National Bureau of Statistics that broader service sector growth had accelerated in Q3 meant that the 6.9% GDP prints wasn’t completely unbelievable. Last night, our China economist lowered his overall growth forecast for 2015 to 6.9% from 7.1% previously, and 2016 to 6.7% from 6.9%.Lewt us know if you have not received his write up of yesterday’s data but would like to.

Weaker commodity prices look to have had a hand in pulling AUD/USD back down to where it was just in front of the China data at around 0.7250, having traded briefly back on a 0.73 handle during the European afternoon.  The NZD has also eased back, off 0.3% so far this week, while the Canadian dollar has underperformed both (-0.9%) as we await the result of Monday’s Canadian general election and where an indecisive outcome (hung parliament) was looking like the most likely outcome based on pre-plebiscite opinion polls. Plus of course the latest drop in oil prices.

A final thing to note overnight is that the yield on US Treasury Bills maturing on November 12 has risen from 0.0325% to 0.0625%. These are the first bills maturing after the latest estimates for when the US Treasury will exhaust the use of special accounting measures that is keeping the government operating within the current debt ceiling.

Coming Up

The RBA Board Meeting Minutes are the main point of interest today. The Governor’s post October Board Statement had minimal changes, suggesting the Bank had not changed its view of the economy significantly, and arguably it now had greater confidence in the continuing moderate expansion of the economy (see Chart of the Day) with the removal of the qualifier “most of” when describing information suggesting a moderate expansion.  The Minutes will provide further colour on the RBA’s discussion, though the meeting to which they refer pre-date the recent NAB Monthly business survey and the Labour Market data.

At the same time, the RBA’s concerns around the housing market were mixed with the addition of Melbourne as a city where dwelling prices continue to rise, while at the same time noting that regulatory measures are “helping to contain risks” in the housing market. We note that this meeting would have included a presentation of the Financial Stability Review which was released Friday and noted “risks surrounding the housing and mortgage markets seem higher than average at present”. Latest auction clearance rates will have given some succour to their view that prices in the Sydney and Melbourne apartment sectors were now at risk from oversupply.

Also of interest will be the RBA’s take on developments internationally, particularly China and financial market volatility, with statements to date being sanguine and not impacting on the RBA’s forecasts for trading partner growth. Yesterday’s Q3/September China data are unlikely to have materially changed that view.

Offshore tonight, US housing starts are the main draw. NY Fed president Dudley speaks again, while Fed chair Yellen is due to the give brief introductory remarks at a Labor Hall of Honour induction ceremony. This doesn’t look like the occasion to update us on her policy thinking.   BoE Governor Mark carney testifies before a UK parliamentary committee. We’ll also get the latest GDT dairy auction, where according to our BNZ colleagues; we might get some “consolidation or even possible retracement of the recent eye-watering price gains”.

Overnight

On global stock markets, the S&P 500 was -0.10%. Bond markets saw US 10-years -0.53bp to 2.03%. On commodity markets, Brent crude oil -3.35% to $48.77, gold-1.2% to $1,170, iron ore -2.5% to $53.74. AUD is at 0.7246 and the range was 0.7239 to 0.7307.

US NAHB Housing Index 64 (62 E, 62P)

 

For full analysis, download report:

Markets Today: 20 October 2015 (PDF, 285KB)

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