A rising commodities tide lifted all boats overnight, with an improved tone in risk evident in equities, bonds, and currencies. The AUD outperformed after the RBA stood pat yesterday. It is a very busy day ahead.

A tip of the hat to our Economics colleagues, who not only rightly picked an unchanged RBA Cash Rate at yesterday’s meeting, but also warned that the Board might highlight its ability to ease, given recent (soft) inflation outcomes. NAB Economics was looking for “a phrase such as ‘recent inflation data points to greater scope to ease monetary policy should the need arise’” (What To Watch, 30 October). In the end, the Board wrote, “the outlook for inflation may afford scope for further easing of policy, should that be appropriate to lend support to demand”.

AUD’s squeeze higher did not simply come courtesy of the unchanged rate decision (markets had priced near-50% for a cut), but also the peppier language on activity data. The Board added the phrase “the prospects for an improvement in economic conditions had firmed a little over recent months”. We only expect the Bank’s newfound ‘scope’ to only be utilised should the outlook deteriorate to the point the unemployment fails to fall. NAB continues to see the RBA on hold at 2% for an extended period.

NZD underperformed the majors after another soggy dairy auction, where prices fell by 7.4%, after the 3.1% decline previously. This was within the range anticipated we’d anticipated, but some of the details are suggestive of a softer outlook for dairy prices than we’d anticipated. AUD/NZD took another leg up after the auction, capped at the moment by the 200-day moving average at 1.0770.

Across markets more broadly, there does seem to be a firmer risk tone, helped considerably by the ~4% jump in oil prices. Speculation on improved demand by refiners drove that move. Commodity producers led gains on the major equity bourses. High-yielding currencies sit atop currency leader-boards (notwithstanding NZD) and funding currencies at the bottom, reflecting a continued appetite for carry amid this volatility lull.

US factory orders were the only significant piece of data released, and fell in line with expectations (-1.0% m/m).

In comments made earlier this morning, ECB President Draghi said that “degree of monetary policy accommodation will need to be re-examined”, hewing closely to the tone he took in the Il Sore interview over the weekend. The market shrugged this off, still very convinced that the ECB will ease in some dimension or another come December. We’d tend to agree, but this does highlight the risk of extreme disappointment (and a nasty short squeeze) if Draghi does not deliver.

Coming Up

It’s a full day of data and events ahead. First up is NZ’s Q3 employment report, where our BNZ colleagues are expecting the unemployment rate to creep higher to 6.0% (as does consensus). Note that this would come despite solid job gains, and simply a result of even stronger growth in labour supply.

At 11.30 AEDT, we get local trade balance and retail sales data. The latter will likely get more attention. NAB is picking an above-consensus 0.7% m/m gain, taking cues from our online retail sales report. We pick a slightly worse trade deficit than consensus, at $3.24b.

A slew of services PMIs are due, including the Caixin China services PMI at 12.45 AEDT, and the US ISM non-manufacturing survey later tonight. The latter is expected to slip slightly, but should continue to ride high, above 55. Of course, the market will also pay some attention to the ADP employment report, no matter its tattered reputation as a precursor to non-farm payrolls.

But it’s the clutch of Fed speakers tonight that will hold our attention. As noted yesterday, Fed Chair Yellen’s appearance on the roster is a bit of a red herring, as her testimony will focus on bank regulation. We’re instead looking toward NY Fed President Dudley’s comments at a Q&A session. Fed Board of Governors member Brainard will also be on the wires. Her views will be interesting, given that she weighed in on the dovish side in mid-October.

Overnight

On global stock markets, the S&P 500 was +0.40%. Bond markets saw US 10-years +4.68bp to 2.22%. On commodity markets, Brent crude oil +3.55% to $50.52, gold-1.6% to $1,117, iron ore -0.8% to $49.11. AUD is at 0.7194 and the range was 0.7120 to 0.7219.

For full analysis, download report:

• Markets Today: 04 November 2015 (PDF,315 KB)

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