Markets Today: Cautious Man

Bruce Springsteen cautious man tells the story of a man that has doubts about his marriage and in a similar way markets have started the week in a tentative mood reflecting some concerns on the outlook.


Bruce Springsteen cautious man tells the story of a man that has doubts about his marriage and in a similar way markets have started the week in a tentative mood reflecting some concerns on the outlook. Equities are little bit lower with energy stocks leading the decline, weighted down by the pull back in oil prices as scepticism appears to be rising on OPEC ability to limit supply. The softer tone in equities attracted some demand for US Treasury while the USD is softer across the board with mixed US data releases seemingly also a contributing factor.

WTI and Brent oil are both down by 1% following news that Libyan output expanded last week (560k barrels a day from 540k previously), Iran repeated its intension to boost production and Nigeria’s oil minister said that the African nation was aiming to increase its output by 400k barrels a day to 2.2m. OPEC’s task to restricting oil output appears to be getting harder every day. Adding salt to the wound, a US report showed rigs targeting crude in the US rose for a seventh week to the highest level since February.

Speaking in New York, Fed Vice Chair Stanley Fischer said that government policies could help partly counter the impact of lower productivity and an aging population which is weighing on the U.S. economy and keeping interest rates low. Fischer argued that a combination of “more encouragement for private investment, improved public infrastructure, better education, and more effective regulation is likely to promote faster growth of productivity and living standards,”

US Industrial Production rose 0.1% in September matching consensus. The IP data has been volatile recently, but the trend suggests manufacturing productivity is now just above flat and the drop in mining appears to have ended. On the disappointing side, the October Empire State index fell to -6.8 from -2.0 against expectations of a rebound to +1.

Looking at currencies, the USD is softer against most currencies. The NZD is at the top the G10 leader board, up 0.65% followed by the NOK (+0.45%) and JPY (0.31%). Meanwhile GBP and AUD are little changed currently trading at 1.2196 and 0.7623 respectively. BoE deputy Governor Broadbent said the currency’s slump since the U.K. vote to quit the European Union will help the economy overcome shocks from the decision.

Looking at other commodities, Iron ore climbed another 1.9% and ended the day at $58.4. Gold was up 0.3% to $1255, thermal coal eased back a little by 0.4% to $228 and copper is practically unchanged at $4671.

Coming Up

We have a busy calendar today with CPI the main theme domestically and in offshore markets. RBA Governor Lowe kicks off the day events when he speaks at the Citi’s Annual Australian & New Zealand Investment Conference (8:10am Sydney time). The topic of the speech is “inflation and monetary policy” and no doubt the market will be looking for any hints on how patient the RBA may be in terms of returning inflation to the target band.

The Governor could well be half way through his speech when New Zealand releases its Q3 CPI report (8:45am Sydney time). Our BNZ colleagues expect CPI to print flat for the quarter (in line with market expectations) meaning the annual CPI should come at 0.1%, down from 0.4% previously. An outcome close to market expectations should seal the deal for an RBNZ rate cut next month and it could also provide some clues to what Australia’s Q3 CPI may look like the following week. Later this morning we also get the RBA October Board Minutes along with new vehicle sales figures for September.

Moving on to Europe, the ECB releases its Q3 bank lending survey and the UK releases its house price index for August and its September CPI figures (0.1%mom exp. vs 0.3% prev.). The market will be looking for any signs of an increase in import prices following the sharp GBP decline post the June EU referendum. Importantly, as well, if inflation surprises on the upside, then the big question will be to what extent the BoE will be happy to run the economy hot.

Tonight the US also releases its CPI figures. In August both the headline and core numbers exceeded expectations, the year on year headline number moved to 1.1% and the core reading climbed to 2.3%, its highest level post the GFC. For September the market is looking for a 0.3% rise in headline and 0.2% in Core. If the latter number is right, then core CPI will retain its 2.3% yoy reading. The report will also be analysed to see if inflationary pressures are becoming broad based. In terms of Q3 reporting season Goldman Sachs, Johnson & Johnson and Intel are the notable companies reporting today.

Early on Wednesday morning we have another GDT dairy auction and our BNZ colleagues expect little change in price.


On global stock markets, the S&P 500 was -0.29%. Bond markets saw US 10-years -3.35bp to 1.77%. In commodities, Brent crude oil -0.88% to $51.54, gold+0.3% to $1,255, iron ore +1.9% to $58.38. AUD is at 0.7625 and the range since yesterday 5pm Sydney time is 0.7589 to 0.7628.

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