Markets Today: Ain’t that lonely yet

It’s been a mix of events in the UK (better data), Europe (no immediate declared Catalan independence from Puigdemont) and the US (Trump tax politics and a softer NFIB report) that have provided the background for limited currency moves overnight.

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The Euro and Sterling have been the better performers, the Euro up a net 0.25% since late yesterday, Sterling up 0.14%, while the DXY has eased 0.44%.

AUD and NZD have been relatively unchanged, the AUD having had a little shot in the arm yesterday after another strong NAB Business Survey and the Kiwi now waiting for Winston Peters to declare his coalition partner.  On that front, it now seems that Peters will not be declaring his hand by tomorrow night for logistical reasons.  On the local political front, the High Court case is now underway over whether the seven MPs who declared dual citizenship can remain in Parliament, a decision possibly as early as later this week.  Barnaby Joyce’s case is one of those, sitting as he does in the Lower House where the Government holds a one seat majority.

Bonds have not broken new ground overnight, a modest risk-off tone evident given events in Spain and some uncertainties over the Trump tax plan.  Among commodities, oil was higher (supply cut half promises?, positioning?), iron ore fell further, while LME most base metals rose.

The markets were waiting to hear from Catalan President Puigdemont on whether he would declare independence from Spain.  He did not declare independence in his speech, but accepted that the referendum is a mandate to push for independence.  For now however, he’s suspending the referendum for “weeks”, calling for a dialogue.  The initial response of the Spanish Government has understandably been firm saying that Catalonia has declared “deferred independence” and that Puigdemont’s irresponsibility is at an absolute extreme.  The Euro has been little moved, stronger overnight and holding on to those modest gains.  Spanish stocks under-performed.

Sterling has risen a quarter of a cent or so, currently trading just above 1.32 after better data.  Industrial production rose 0.2% in line with expectations but upward revisions saw annual growth at 1.6%, 0.7% above expectations.  Manufacturing was stronger too, as was Construction output, that report also helped by revisions.  It was revision city at the ONS, the August trade deficit much wider than expected, as much from revisions.  Sterling OIS pushed a little higher the priced-in probability of the BoE hiking at the Nov 2 meeting to 79% from 78% and by the Dec 14 meeting from 92% to 97%.

The 2017 IMF released upgraded global growth forecasts overnight, increasing growth this year and next by 0.1% to 3.6% and 3.7% on the back of upgrades to the US, China and Europe.  Australia’s growth forecast for this year was set at 2.2%, a forecast that looks a little low to us (NAB 2.5%) the IMF though seeing growth picking up to 2.9% for 2018 as Cyclone Debbie average year growth effects dissipate.  No market impact.

Finally, the politics of the Trump tax plan continues to get murkier, this time the President and senior GoP Senator Corker having swapped barbs over recent days.  The NFIB Small Business Optimism Survey for September was weaker than expected at 103, down from 105.2, six of the nine survey districts (beyond hurricane areas) reporting weaker job creation.  This survey might have missed or only caught the tail at most of the Trump tax plan released 27 September.  We’ll be watching next month’s to see if there’s any kick to confidence or investment plans.

Coming up

There are two events in our time zone today that bear some watching.  First is the monthly reading on consumer sentiment from the Westpac-Melbourne Institute survey.  It was 97.9 in August, a level to be frank that’s not too far (-3.4%) from its long term average of 101.4.  The corresponding weekly ANZ-Roy Morgan Consumer Confidence Survey is 1.0% below its average back to the survey’s start in July 2010, the WMI survey lower by a modest 1.8% on the same time scale basis.

Consumer confidence is a little on the “unders” side relative to an more upbeat NAB Business Survey though to describe consumers as anxious or super-cautious would be a stretch. It’s more the lack of income growth. Let’s see if another month of a steady RBA, a flat-to-lower $A and better labour market headlines have had any material spill-over into consumer spirits.

The other event worth watching by simple virtue of the speaker’s vote on the FOMC is Robert Kaplan’s speech at the Stanford Institute, speaking at 11.00 AEDT.  Japan has Core machine and Machine tool orders data reports today too.

There’s more Fed interest tonight with the Fed’s Evans and Williams both speaking as well as the FOMC Minutes, as well as the US JOLTs Job Openings report, this one for August.  But to be frank, the market is really waiting on Friday’s CPI as the next key watch point (along with retail sales), including whether they were at affected by the hurricanes.

Overnight

On global stock markets, the S&P 500 was +0.23%. Bond markets saw US 10-years -0.72bp to 2.35%. In commodities, Brent crude oil +1.33% to $56.53, gold+0.7% to $1,291, iron ore -2.6% to $61.01, steam coal -1.3% to $95.35, met. coal +0.3% to $179.50. AUD is at 0.7781 and the range since yesterday 5pm Sydney time is 0.7774 to 0.7795.

Good luck.

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