Initially it was a choppy night for markets, carrying on with last week’s risk-off mood with oil initially testing new lows and European stocks heavy. A measure of calm returned, oil bounced off its lows, as did the Aussie dollar which is trading this morning closer to 0.7250. Iron ore prices broke rose for once, up $US0.76, up 1.9% to $US39.06. And so, the AUD sits atop the FX overnight leader board. US bond yields moved back up. There was little to no data of any consequence last night.

ECB President Draghi has been speaking at a conference in Italy, talking the good talk that he expects ECB stimulus will raise Euro area inflation “without undue delay”. He continued: “There is no doubt that, if we had to intensify the use of our policy tool to reach our price stability objective, we would do so”. Take from that what you will as far as any further ECB action given how expectations for ramping up monetary stimulus in an aggressive fashion were dashed this month.

Bank of England Deputy Governor Shafik has also been speaking (seen as in the monetary hawk camp) and says that while the BOE’s next move is likely to be to raise rates, she would “proceed with caution”.

Coming up

Ahead of the FOMC on Thursday morning, we have the RBA minutes of this month’s board meeting at 1130, followed at 1 PM by the release of the government’s midyear economic and fiscal outlook (MYEFO), and press conference.
The RBA minutes for December should confirm the Bank’s observations of the trend improvement in the non-mining economy. The RBA held fire in the Board day release from any renewed anxiety over the $A; we expect the Minutes to do likewise.

For MYEFO, there’ll be initial headline focus on the revised mid-year estimate of the Underlying Cash Balance (UCB) for 2015-16 and the profile beyond then. Amongst the re-jigging of the economic forecasts, there will be some focus on a likely downward revision to the terms of trade and any re-thinking of how the domestic economic improvement is playing out for the economy and the Budget. The median economists’ forecast is expecting to see the May $35.1bn deficit to be revised to $38bn. We expect less of a deterioration, to $36.5 billion. Also look out for the deficits in the out-years and the path back to surplus, the incorporation of slower potential growth assumption of 2¾% and any follow-up comments from ratings agencies. From a qualitative perspective, we’ll be interested to observe what new assumptions are embodied for the price of iron ore and the terms of trade but also whether the pickup in the non-mining economy is as yet showing up in higher tax revenues, with slower wages growth also coming with higher employment levels.

The government has also made clear that new spending from the likes of last week’s Innovation statement – which kicks in mostly from 2016-17 – and additional funds for the Syrian refugee crisis will be met by other budget measures rather than adding to the deficit’s bottom line.

As for data, Australia also has the statistician’s measure of house prices for Q3 that we expect will draw little to no market interest given the release elsewhere of house prices up to early December. November vehicle sales numbers are also out today as well as another weekly update from the ANZ Roy Morgan consumer confidence report.

On the schedule tonight, the Fed starts its two-day meeting and on the data front there is November UK CPI and PPI, the German ZEW survey for December. In the US focus will be on the November CPI, particularly core inflation that’s expected to tick up in annual terms from 1.9% to 2%. The NAHB housing market index for December is also out, expected to rise from 60 to 63.

Overnight

Commodities steadier for once: Eurostoxx 600 -1.8%, Dax -1.9%, CAC -1.7%, FTSE -1.3%. Dow +4 points to 17,270, +0.0%, S&P 500 +0.0%, Nasdaq -0.1%, VIX 23.85 -2.2%. Shanghai +2.5%, Mumbai +2.5%, Nikkei 225 -0.1% and ASX 200 -2.0%; ASX SPI futures this morning -0.5%. US bond yields: 2s at 0.94% (7), 10s at 2.22% (+9). WTI oil at $36.44 (+2.3%), Brent at $38.14 (+0.6%), Malaysian Tapis (yesterday) $37.82 (-5.0%). Gold at $1065.90/oz (-0.9%). Base metals: LME copper -0.7%, nickel +0.6%, aluminium +0.6%. Iron ore $39.1/t +2.0% Chinese steel rebar futures +1.0%. Soft commodities spot futures: wheat +0.7%, sugar -0.5%, cotton -0.9%, coffee -1.1%. Euro CO2 emissions price (Dec 15) +0.0%. The AUD/USD’s range overnight 0.7195-0.7270; indicative range today 0.7210-0.7265; the AUD/USD is 0.7241 now

EC industrial production (Oct) 0.6%/1.9% (L: -0.3%/1.7%; F: 0.3%/1.4%); India CPI (Nov) 5.41% y/y (L: 5.00%; F: 5.3%); Canada Teranet/National bank home prices (Nov) 0.2%/6.1% (L: +0.1%/5.6%; E: -0.2%/5.5%)

Good luck.

For full analysis, download report:
• Markets Today: 15 December 2015 (PDF, 338KB)

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