In a relatively quiet session, the impact from the Paris attacks on global markets has been fairly muted. The USD is stronger against all G10 currencies with the euro and NZD sitting at the bottom of the leader board. European and US equity indices have managed to post small gains, but the performance of government bonds has been mixed. In Europe, UK gilts and German Bunds ended the day in positive territory (yield lower) while US Treasury yields are slightly higher with the safe-haven bid fading late- on.

Market reaction to Friday’s terror attacks in Paris has been fairly consistent with recent history. Beyond an initial flight to safety, markets have remained fairly calm and unless we see an impact on confidence and a slowdown in growth, the market impact is only likely to be temporary. Along this line of thinking, last night ECB Praet said that the ECB is watching the euro area confidence after the Paris attack, noting that “usually these sorts of events have transitory effect in the economy, so this is not a priori a reason to change the way we see the evolution of the European economy”.

Looking at currencies in more detail, the Euro remains under pressure back below 1.07 and the NZD has finally broken below its 0.65 support level. The move lower in the NZD appears to have been driven by a large sell order in the London session. Our NZ currency strategist notes that 0.6420 is the next line of support and tonight’s dairy auction is the risk event to watch.

Looking at data releases overnight, the US Empire State manufacturing index showed a modest improvement in November, rising to -10.7 from -11.04. While a rebound in the new orders index was a positive, this is the fourth month the index has remained deep in negative territory reflecting the impact from a strong dollar in the manufacturing sector along with softer demand in Europe and Asia. The soft manufacturing theme was also evident in Canada with September factory sales falling by 1.5% versus forecast gains of 0.2%.

Coming Up

It’s a quiet day for data domestically with the weekly ANZ-Roy Morgan consumer confidence at 9.30am the only release. At 8:30am RBA assistant governor (economics) Christopher Kent is due to make opening remarks at a conference and at 11:30am we get the November RBA Board Minutes. Our interpretation of the RBA’s current thinking is that while low inflation provides the scope for further monetary easing, should that be required, the prospects for a strengthening in growth suggest the cash rate is likely to remain on hold for some time. We expect today’s remarks by Chris Kent and the minutes will provide additional support to our view.

In offshore markets the data highlights are the October UK and US CPI readings. In Europe it’s all about central bank speeches with ECB’ Lautenschlaeger and Bundesbank’s Dombret speaking at Euro Finance week and we also get the latest German ZEW survey. The US also releases industrial production for October and the NAHB Homebuilder Survey for November.

Recently many Fed speakers have noted that the start of the tightening cycle is contingent upon their confidence that inflation will return toward their 2% target over the medium term. Although today’s October CPI reading is a lagging indicator of economic activity, it is still an important piece of economic evidence that can influence policy makers reading on the economy. Since October last year US headline inflation has been dragged lower by a decline in energy prices and a stronger dollar. Meanwhile the core CPI reading has been fairly steady (see chart below). In September the YoY change for headline CPI was 0.0% while the core reading printed at 1.9%. Looking ahead expectations are for the headline CPI to move higher, as the impact from last year’s hefty declines in gasoline prices begins to fade. Current market consensus is for both the headline and core CPI to print at 0.2% in October. A headline CPI print in line with consensus would result in a rebound on the yoy, albeit just to 0.1%.

In terms of the other US data releases, October’s industrial production is expected to print at 0.1% supported by tepid signs of a modest increase in manufacturing output. The NAHB Homebuilder Survey for November is expected to print at 64 and in line with its October reading.

Overnight

On global stock markets, the S&P 500 was +0.80%. Bond markets saw US 10-years +0.9bp to 2.276%. On commodity markets, Brent crude oil -0.49% to $44.25, gold+0.1% to $1,082, iron ore -0.8% to $47.74. AUD is at 0.7094 and the range was 0.7081 to 0.7135.

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• Markets Today: 17 November 2015 (PDF, 312KB)

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