Markets Today: Front and centre

Markets took their cue from Fed Chair Janet Yellen overnight, testifying before the US House Financial Services Committee on bank regulation.

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Markets took their cue from Fed Chair Janet Yellen overnight, testifying before the US House Financial Services Committee on bank regulation.  In the Q&A session she confirmed that a fed move in December is a “live” possibility, providing that the economic data hold up.  This saw markets move to price in a high probability of a December move, increasing the chances from 50% up to 60% towards the end of New York session, the big dollar appreciating as a result. She told the committee that “moving in a timely manner, if the data and the outlook justify move, is the prudent thing to do”. With US bond yields higher – the two-year up five basis points and the 10 up 2bps to 2.23% – stocks fell back somewhat, the Dow off 0.21% and S&P 500 down 0.33% into the close. Big dollar strength was broad-based, underperformers being the oil currencies from lower oil prices; the AUD is down 0.5% to 0.7151 and NZD down 0.95%.

Dollar strength was given some impetus by a stronger than expected US ISM nonmanufacturing report, up from 56.9 to 59.1, reflecting what could only be described as a vibrant US service sector, encompassing a near six point gain in the new orders index to 62 and the employment component pushing up further from 58.3 to 59.2.

In regional news yesterday China’s President Xi outlined a five-year growth plan to double GDP and per capita income by 2020, requiring six and half percent growth.

Coming up

First up this morning at 9:05 AM is RBA Governor Stevens speaking at the Melbourne Institute 2015 Economic and Social Outlook conference in Melbourne. With the RBA board meeting out of the way, he will be widely expected to deliver the RBA’s latest thinking on the economy and forecasts and ahead of tomorrow’s quarterly Statement on Monetary Policy. The Q&A if not the speech should open up plenty of such opportunity for market interest. He is speaking at a panel session titled “What do we know about successful policy implementation?” Also speaking with Stevens is Peter Harris, Chairman of the Productivity commission, so medium term growth and economic policy reform should also be a focus.

There is lots more on for central banks late during our session with the BoJ publishing the Minutes of its October 6-7 meeting at 1050 AEDT, followed at 1130 by fed vice-chair Fisher’s to the national economists club in Washington, surely with even more in the way of wire service coverage on the economy and monetary policy.  Deputy RBA Governor Philip Lowe is on a panel in Sydney this afternoon at 1:10 PM, at a FINSIA Regulators panel discussion.  Even so, whatever the thoughtful Phil Lowe says, the market pays attention to.

First cab off the rank tonight is German factory orders, the market expecting a rebound of 1% after 1.0% fall. Then we have the Norwegian Norges central bank meeting, though no change in rates is expected. As well there is Eurozone retail sales, though likely be more focus on European Commission’s revised economic forecasts and what if any that means about ECB thinking on the outlook for growth and inflation ahead of the December meeting. No less than ECB President Mario Draghi is speaking tonight as well. The BoE is meeting; no change in policy is universally expected though the Bank’s minutes and press conference will get a lot of coverage as usual. US data includes jobless claims, Q3 productivity. Finally, in the US, there is more fed speak from Bill Dudley of New York who is speaking with IMF head Christine Lagarde and Fed vice-chair Stanley Fischer at a Banking Culture conference in New York. The Fed’s Lockhart speaking at a function in new in Switzerland. Dudley has been speaking this morning, agreeing with Yellen this morning that is a “slight possibility”.

Overnight

Market pricing in Fed Dec move: Eurostoxx 600 +0.5%, Dax -1.0%, CAC +0.2%, FTSE +0.5%.  Dow -51 points to 17,867, -0.3%, S&P 500 -0.3%, Nasdaq -0.1%, VIX 15.33 +5.4%.  Shanghai +4.3%, Mumbai +4.3%, Nikkei 225 -0.1% and ASX 200 +0.1%; ASX SPI futures this morning +0.1%.  US bond yields: 2s at 0.81% (5), 10s at 2.23% (+2).  WTI oil at $46.47 (-3.0%), Brent at $48.67 (-3.7%), Malaysian Tapis (yesterday) $49.41 (+3.1%).  Gold at $1108.00/oz (-0.5%). Base metals: LME copper +0.2%, nickel -0.4%, aluminium +0.2%. Iron ore $49.2/t +0.1% Chinese steel rebar futures +0.3%. Soft commodities spot futures: wheat +1.7%, sugar -5.5%, cotton -1.0%, coffee 0.2%.  Euro CO2 emissions price (Dec 15) -0.6%. The AUD/USD’s range overnight 0.7136-0.7217; indicative range today 0.7120-0.7175; the AUD/USD is 0.7149 now

EC Services PMI (Oct, final) 54.1 (Prelim: 54.2); Germany 54.5 (Prelim: 55.2); France 52.7 (Prelim: 52.3); UK Markit/CIPS Services (Oct) 53.3 (L: 53.3; E: 54.5)

ISM Non-manufacturing (Oct) 59.1 (L: 56.9; E: 56.5); US trade (Sep) -$40.81B (L: -48.02B; E: -$41.0B); US ADP employment (Oct) 182K (L: 200K; E: 180K);

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