Today’s podcast

https://soundcloud.com/user-291029717/courting-support-ahead-of-election-debates?in=user-291029717/sets/the-morning-call

Overview:

• NASDAQ & S&P500 pull their socks up Friday but latter still down for fourth week in a row and -5.8% month to date
• AUD softer again Friday and down 3.5% on the week amid broad based EM currency weakness and USD strength
• US Trump-Biden first TV debate Tuesday and any poll reaction to this (and too Supreme Court nomination Amy Barrett) of keen interest this week…
• …so too movement or otherwise on US fiscal support; also EU/UK trade talks coming into the tunnel   
• Data wise,  US labour market data Friday (last before US election), China PMIs Wednesday. No top-tier local data or events

It was a relativity quiet end to last week, but a good day for the NASDAQ Friday, +2.3% – big-tech now somewhat laughingly referred to as ‘defensive’ given the relative immunity of the sector (or benefits) to adverse covid-19 developments – pushing the index into positive territory for the week (+1.1%). A 1.6% gain for the S&P still made for a fourth consecutive down week (-0.6%) and leaves the index -5.8% month to date with three trading days to go until month/quarter end. The latter could be an interesting one for currencies from a rebalancing perspective depending on how stocks go between now and Wednesday.

Despite being a positive US session for risk assets, in FX the USD still eked out additional gains (+0.3% in DXY and BBDXY terms) with AUD/USD down another 0.23% to a low of 0.7006 before lifting to 0.7030 by the NY close. AUD is down 3.5% on the week, losses within the G10 spectrum only surpassed by the Swedish and Norwegian Crowns. As well as the impact of broad based USD strength, of special relevance to AUD (and to only slightly lesser extent the NZD) is the across-the board weakness in EM currencies, not so much in Asia but led by the likes of MXN, BRL and other Latam currencies, the South African Rand, Russian Rouble and Turkish Lire. Here, we often find that the AUD correlates better with a global  EM FX index than with one linked just to Asian EM, despite the strength of trade ties with the latter. As per the chart below, the global EMCI was off 2.5% last week versus just -0.66% for the (Asian) ADXY:

Partly due to USD strength but perhaps too the demand-side implications of virus trends in the US, Europe and elsewhere (e.g. New York reported more than 1,000 cases on Saturday for the first time June 5) it was a poor week for commodities, ranging from -2% for WTI crude oil to -4% for the LMEX base metals index to -4.9% for gold.

Global government bonds markets remain extremely well supported, US 10-year Treasuries off 1bps Friday to 0.65% and the German Bund -3bps to -0.53%.

In economic news, US Durable Goods Orders disappointed expectations in headline terms (+0.4% vs. +1.5% expected) but the less volatile capital goods ex-defence, ex-aircraft reading was better than expected at +1.8% (1.0%) and July was revised higher to 2.5% from 1.9%.

China August industrial profits were reported Saturday up a healthy 19.1% versus 19.6% in July (back in March close to the peak of China’s covid-19 lockdowns, they were -35% y/y).

on Saturday evening in Washington Amy Coney Barrett was confirmed as President Trump’s new Supreme Court pick, the third of his Presidency. Confirmation in coming weeks (highly likely) will install a 6-3 conservative bent to the Court. Barrett’s nomination has immediately has taken on 3 November election significance. Both President Trump and Senate minority leader Chuck Schumer are claiming that her elevation to the Supreme Court could sound the death knell for the Affordable Care Act (Obamacare) in its current guise (in particular with respect to the current provisioning that compels insurers to take on people with pre-existing medical conditions). There is also the question of how the nomination of a mid-western Catholic conservatives will play with voters in some of the so called Rust Belt and Sun Belt ‘battleground’ states where Joe Biden currently has his nose in front of Trump.

Coming Up              

• Globally, a key focus this week will be the first Presidential TV debate on Tuesday and any movement in the polls one way or another following this (and too the first poll reactions if any to Amy Coney Barrett’s Supreme Court nomination).  An equally or keener market focus will be on progress or otherwise on reconciliation between Republicans and Democrats on a new fiscal support package, In which respect House speaker Pelosi and Treasury Secretary Mnuchin reportedly spoke on Friday after market’s closed, but with no indication given of progress.  EU/UK post-Brexit trade talks continue this week.
• Datawise the key pieces are the US Manufacturing ISM on Thursday, Personal Income/Spending also Thursday, and the September payrolls on Friday, the last before the US elections consensus on payrolls +865k with the unemployment rates seen ticking down to 8.2% from 8.4%).
• Outside the US, Official China PMIs and the Caixin manufacturing PMI are on Wednesday, where the consensus looks for little change in momentum with the industrial recovery continuing. Encouragingly, strength is also being seen in the non-manufacturing PMI, suggestive of a broadening in the recovery.
• Locally, the gradual easing of containment restrictions in Melbourne from Monday will be a focus. Datawise it is mostly quiet with only a smattering of data, including August Credit and Building Approvals on Wednesday, Job Vacancies on Thursday, and a final read on Retail Sales on Friday. House Price data on Thursday though could create a few headlines with weekly data showing house prices have actually increased in Perth, Adelaide and Brisbane. Wednesday’s ANZ business survey is arguably the pick of this week’s NZ news. The preliminary read for (very early) September, was distinctly less downbeat.

Market Prices

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