Selling of Sterling re-emerged in the Asia session yesterday and into London as the prospect of a “hard” exit from the EU loomed large.  A date for triggering Article 50 announced over the weekend and repealing the jurisdiction in the UK of the European Court of Justice played into the mix with the political primacy of the immigration issue even ahead of preferred EU market access.  GBP/USD was sold down through 1.29 to test 1.2820 and within sight of the post-Brexit poll low of 1.2798 of 6 July.  Adding to the sombre mood, mentioning “turbulence” and “rollercoaster” prospects ahead, UK Chancellor Phillip Hammond warned that the UK would not get back to surplus until 2020.

Pound selling has eased (now at 1.2855; AUD/GBP at 0.597), UK PMI Manufacturing for September coming in at a healthy two year plus high of 55.4 (up from 53.4) and also beating 52.1 forecast, giving hope that Sterling’s decline will temper lack of preferred EU trade access.

Elsewhere, there have been pluses and minuses across major FX markets, equity markets were choppy in Europe (the FTSE rose 1.22%!) but opened weaker in the US, then steadied after the release of a somewhat better than expected ISM Manufacturing report at 51.5, up from 49.4 and beating the 50.4 consensus. Employment was less negative at 49.7 (cf 48.3) with production and new orders both higher.  US Treasury yields pushed higher towards a Dec Fed hike, 2s by 3 bps and 10s by 2.4 bps.

US construction spending in August fell 0.7%, which, along with downward revisions, saw the Atlanta Fed’s GDPNow for Q3 reduced further to 2.2% from 2.4% on lower business and government construction spending.

In commodity news, LME base metals were soft (Cu -0.95%; Ni -2.13%), WTI rose 0.91%, Brent +1.28%), gold gave up 0.17%.  (Iron ore and Chinese steel markets are offline during China’s Golden Week.) Coal prices have risen further: coking coal prices by $6.50/t to $206.50 and steaming coal prices rose 3.58% to $78.20/t, up $2.70.

Coming up

Most interest today will be at the 2.30pm release of the RBA Governor Lowe’s post-Board Media release with no change odds on with interest homing in on the Bank’s description of the economy and the Aussie.  Since the last Board meeting, Q2 GDP revealed annual GDP growth of 3¼% (as forecast in the August SoMP but recently described by Lowe as a “bit better than expected”), a steady NAB Business Survey and again mixed labour market report with lower employment and unemployment rate.

Noteworthy of late has been the rapid uplift in coal prices coal) that Governor Lowe mentioned in his 22 September Parliamentary testimony noting that while “It is difficult to predict the future, but if these recent increases were to be sustained then we could look forward to the drag on our national income from falling commodity prices coming to an end fairly soon”.  On housing he mentioned that “the construction cycle appears to have a bit more momentum than we earlier expected” while on prices he seemed to recognise price gains as being a little stronger: “The rate at which established housing prices are increasing has also moderated a bit, although there do remain some pockets where prices are increasing quite briskly”.  Commodity and housing developments have been positive.  Against those, while recognising the limits of being able to deliver a lower exchange rate, the RBA’s Dr. Kent said at the same hearing that “it would be good if it were a bit lower”.

Ahead of the RBA announcement this afternoon there is the (9.30am) weekly ANZ-Roy Morgan consumer confidence report this morning (it’s been up to three year highs in recent weeks), then QVNZ house prices report at 10.00, then at 11.30 comes ANZ Job Ads and Building Approvals that rose a bumper 11.3% in July with at least partial payback tipped for August (NAB -5.5%; market -6.0%).

Later this afternoon comes the RBA Commodity Price Index for September. It’s not one that gathers any market attention, but is one that’s a high-frequency tracker of Australia’s terms of trade, crystallising recent commodity prices into an index that mimics export “prices received”.

Tonight, for Kiwi watchers, there is another Global Dairy Auction.  There are three European central bankers speaking and a Fed speech with the Bank of Spain’s Linde, ECB Chief Economist Praet and the ECB’s Knot speaking, followed by the hawkish Fed President Jeffrey Lacker (a non-voter this year) along with BoE MPC member Michael Saunders (ex Citi and Schroders’ Chief Economist).  US vehicle sales for September are also being released.

Overnight

On global stock markets, the S&P 500 was -0.33%. Bond markets saw US 10-years +2.77bp to 1.62%. In commodities, Brent crude oil +1.22% to $50.8, gold-0.2% to $1,315, iron ore +0.0% to $55.86. AUD is at 0.7674 and the range since yesterday 5pm Sydney time is 0.7651 to 0.7681.

Good luck.

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•  Markets Today: 4 October 2016 (PDF, 98kb)

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