The US dollar sits near the top of the currency leader board this morning, retaining its composure, though more by default of weakness elsewhere. Oil-sensitive currencies are lower on the back further weakness in the price of crude, equity markets were soggy on both sides of the Atlantic with some semblance of a slight appetite for the Japanese yen from risk aversion. The AUD sits below $0.72 this morning, weighed down it seems more from “guilt by association” from oil weakness and despite higher base metals and iron ore prices overnight.  US data disappointed, adding to the likelihood the FOMC will leave rates on hold tonight and soften its language.

Sterling lost some traction overnight in the wake of UK GDP printing below expectations, third-quarter growth coming at 0.5% against expectations of 0.6%, adding to evidence UK economy is slowing and yet another pointer that the BoE will not be hiking rates anytime soon.

While the USD held its composure overnight, the data reports were disappointing.  The September durable goods orders report and the Conference Board’s consumer confidence reading for October both missed expectations.  In the wake of the durable goods orders report, the Atlanta Fed’s GDPNow estimate for Q3 was shaved even further down to 0.8% from an already low 0.9%, the sting in the tail of the durable goods orders report coming with downward revisions.  The Conference Board reported lower confidence and their jobs plentiful/hard to get index took a turn for the worse, another slither of evidence the labour market has lost some momentum in recent months. Not surprising then that the rate market further trimmed the odds of the Fed tonight increasing rates at FOMC which further to this 4% from an already a low 6%.

There was some good news for the big dollar from an agreement between the White House and Republicans over budget spending parameters and extending the debt ceiling to 2017.  It’s still fiercely opposed by the more conservative members of the Republican Party, but it seems likely outgoing House Speaker Boehner will be able to marshal sufficient Republican votes to get it across the line with a vote tonight. They would give the Fed clear Washington air in December should it be in a position to considering “lift-off” then, though that’s looking less likely now.

Coming up

The CPI is the main local event today.  It’s one of the most sensitive indicators for the market given its importance for RBA monetary policy.  However with the unemployment rate above average and wages growth subdued, it’s unlikely to re-shape the outlook for monetary policy even if it’s higher than the RBA expects, say from more exchange rate pass through into consumer goods and service prices.  The AUD could well be more sensitive to a lower print though NAB’s forecast is for a 0.8% print, higher than the market’s 0.7% median.

In the US, there is another growth indicator in the form of the Advance Trade balance for September, the last piece of growth data ahead of the advance GDP print for Q3 tomorrow night and of course the FOMC announcement at 5am tomorrow morning our time.  The market is looking for some reduction in the trade deficit and thus a more growth-friendly net export contribution.

As for the FOMC, the market is priced for only a 4% chance of a move from the Fed from their 0-0.25% target range tonight and only a 33% move at the December 16 meeting.  A more than 50% chance is not priced in until the March 16 meeting next year.  The risk to market pricing is therefore likely to be tilted to a more hawkish than expected outcome in the Statement, anything that might tilt the market’s pricing that a move in December could yet be on.

Overnight

Equity markets still soggy: Eurostoxx 600 -1.1%, Dax -1.0%, CAC -1.0%, FTSE -0.8%.  Dow -42 points to 17,581, -0.2%, S&P 500 -0.2%, Nasdaq -0.1%, VIX 15.43 +0.9%.  Shanghai +0.1%, Mumbai +0.1%, Nikkei 225 -0.1% and ASX 200 -0.0%; ASX SPI futures this morning -0.4%.  US bond yields: 2s at 0.62% (-2), 10s at 2.03% (-2).  WTI oil at $43.21 (-1.8%), Brent at $46.84 (-1.5%), Malaysian Tapis (yesterday) $46.30 (-1.7%).  Gold at $1166.80/oz (+0.1%). Base metals: LME copper +0.6%, nickel +1.1%, aluminium -0.2%. Iron ore $51.5/t +0.9% Chinese steel rebar futures -0.7%. Soft commodities spot futures: wheat -0.1%, sugar -1.5%, cotton +0.3%, coffee 0.0%.  Euro CO2 emissions price (Dec 15) -0.6%. The AUD/USD’s range overnight 0.7191-0.7259; indicative range today 0.7160-0.7230; the AUD/USD is 0.7197 now

UK GDP (Q3) 0.5%/2.3% (L: 0.7%/2.4%; E: 0.6%/2.4%)

US Core Durable goods orders (Sep) -0.3% (L: -1.6%, revised down from -0.2%; E: +0.2%); Conference Board’s Consumer Confidence (Oct) 97.6 (L: 102.6; E: 102.9); Richmond Fed manufacturing (Oct) -1 (L: -5; E: -3)

For full analysis, download report:
• Markets Today: 28 October 2015 (PDF, 327KB)

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

Disclaimer