• Markets were rattled in the early part of the overnight session following news that Turkey had shot down a Russian fighter jet near the Syrian border, after allegedly repeated warnings of Turkish airspace violation.

• Reaction to the news saw European stocks and US equity futures moved sharply lower. Oil prices were boosted amid the increase in tensions in the Middle East while a safe haven bid dragged core global yields lower.

• In currencies, the safe haven bid helped the JPY,CHF and EUR move higher against the USD. Interestingly, however, commodity linked currencies such as the AUD, NZD and CAD were the outperformers buoyed by the 2.4% gains in WTI oil. In this regard, it interesting to note that AUD outperformance has come despite further weakness in the iron ore price. Last night, the bulk metal lost another 1.9%, closing at $43.89, a new 9 year low. GBP was the notable underperformer, following disappointing CBI retail volume sales data for November.
  While European stocks closed in negative territory, US stocks and US Treasury yields have rebounded in the afternoon session amid signs that Russia’s response to Turkey won’t involve military actions.

• In the data front, German’s IFO survey headline business climate indicator was better than expected climbing to 109 from 108.2 in November. The improvement in the survey was consistent with earlier increases in ZEW and PMI surveys and supports the notion that recent concerns over Germany’s economic robustness have been overstated.

• In the US, the Q3 GDP number was revised up to 2.1% from 1.5%, in line with consensus. The improvement in the number was largely driven by an upward revision to inventories which were hugely underestimated in the first reading. The Case-Shiller home prices jumped 0.6% in September (0.3% expected) and the October advance trade in goods was also better than expected, printing a deficit of $58.41bn (prev $-59.1 and $- 60.9bn exp).Bucking the trend, the Conference Board confidence index fell to 90.4 in November from 99.1 in October. This was a disappointing outcome, the survey was run prior to the Paris attacks and further weakness would be concerning.

• Last night RBA Governor Steven gave a speech entitled “The long Run” at the annual Australian Business Economists (ABE) dinner in Sydney. In terms of monetary policy, and consistent with previous speeches, the Governor noted that while there was no barrier to further easing if needed, lower rates were not as stimulatory as they used to be and questioned whether further easing would be the most effective way to aid the recovery. In line with our own observations from our own NAB business survey, he also noted that activity in non-mining is picking up. In Q&A Stevens told the audience to “chill-out” (with respect to prospect of a December rate move).The initial reaction to the speech, pulled the AUD lower, but given the lack of new news the currency recovered shortly after.

Coming Up

• This morning in Australia we get the Q3 reading for construction work done. Following the net growth of 1.6% in June, our economists expect a bit of a payback in Q3 looking for a decline of 1%, slightly more positive than market expectation of -2%. Today’s reading is likely to set the tone on expectations for next week’s Q3 GDP number where NAB currently anticipates a reading of 0.8%, up from 0.2% in Q2.

• Tonight RBA’s Guy Debelle speaks at the FX Weekly Conference in London. There is no tittle to his speech on the RBA website, but given that last week he spoke on benchmarks for both FX and rates, our guess would be that we will get more of the same tonight. Still, given the conference is on FX we will be on guard for any pearls in the Q&A session.

• Looking at international markets, this morning the BoJ releases minutes from its 30 October meeting, however they are unlikely to trouble the scores given that any conclusion would have been superseded by last week’s meeting where the Bank decided to remain on hold.
  It’s a quiet day for data releases in Europe, but a busy one in the US. Given Thursday’s thanksgiving holiday, a few US data releases have been brought forward. The key data releases to look out forare: personal income/spending, PCE deflator, durable goods orders, FHFA house prices and new home sales.
  Of these we would highlight the PCE data. Consumer spending is a key driver of economic growth in the US and needs to be robust enough to withstand the expected Fed funds rate normalization process. The rebound in US payrolls suggests we could see a pickup in income and spending. However a counter argument can also be made from the softer than expected retail sales released earlier in the month. Consensus expects a rise in spending of 0.3% in October, up from the 0.1% increase previously.

• The October Core PCE deflator is expected to rise by 0.1% keeping the year on year rate at 1.3%. That said, the 0.2% increase in core CPI reported last week does pose a slight upside risk to this forecast.

Overnight

On global stock markets, the S&P 500 was +0.10%. Bond markets saw US 10-years -0.35bp to 2.24%. On commodity markets, Brent crude oil +3.12% to $46.23, gold+0.7% to $1,075, iron ore -1.9% to $43.89. AUD is at 0.7245 and the range was 0.7185 to 0.7246.

For full analysis, download report 

• Markets Today: 25 November 2015 (PDF, 282KB)

For further FX, Interest rate and Commodities information visit nab.com.au/nabfinancialmarkets

Disclaimer