In the five days through this Monday, the AUD had been the best performing major currency, rallying by just shy of 4% against the US dollar. In the 22 hours since then, it has been the worst performing, losing 1.3%. Having failed to capture the 0.74 handle either side of the weekend, it now sits back with a 0.72 in front of it in mid-afternoon New York trading.

Yesterday’s local session promised much by way of event risk but in the end delivered little in terms of market price action. The main impact came from the weaker than expected China import data and which took a small bite out of the AUD and gave a very minor fillip (lower yields) to the local rates market

For the currency, it looked to be a case of what couldn’t go up on the (decent) NAB survey goes down on the (slightly worse than expect) China import data, with negative sentiment then gathering momentum in offshore markets.

Here, the spectacle of ‘double-dip deflation’ in the UK as CPI went back to -0.1% against the flat expected, and dovish comments from incoming (and unpronounceable) BoE MPC member Gertjan Vlieghje (who suggested the neutral policy rate might not be far from its current 0.5%) saw GBP hit quite hard. The Euro also took a hit after the ZEW survey of investment professionals showed a much bigger hit to both current conditions and sentiment than expected in a survey that captures the first impact of the VW emissions scandal.

The good news was that the US NFIB Small Business Optimism survey showed a small rise against expectations for a small fall, suggesting as yet no negative impact from weaker stock markets or the evident weakness in the manufacturing sector. The survey’s sub-reading on ‘Net compensation plans’ rose to 16% from 13% – its highest level of the year and fully consistent with an uptick in wages in coming months – though is something many have been looking for – in vain – for a long time now.

US stocks are modestly weaker into the close, and after Johnson & Johnson was the first major household name to report 3rd quarter earnings. Though J&J just beat its consensus street estimate for earnings ($1.49 vs. $1.45) this was on below-expectations revenue with the drug maker saying that currency effects had shaved more than 8% of its top-line revenues.

As for yesterday’s NAB’s September business survey, we saw an improvement in business confidence as the Government leadership uncertainties were resolved (+5 from +1) while financial market volatility and emerging market concerns also moderated from the August heights. Business conditions held steady at 9. Overall, the survey suggests a good degree of resilience in what appears to be a building non-mining recovery.

In commodities a rally in oil prices off yesterday’s lows has quickly petered out with both NYMEX and Brent crude both off more than 1%. This looks to have pulled bond yields back down after an earlier up-tick in yields.

Coming Up

A fair bit on the calendar today, starting almost immediately (or already out depending on when you’re reading this) with JP Morgan and Intel about to report earnings and RBNZ Governor Wheeler about to hit our screens.

We also get Westpac’s Consumer Confidence reading at 10:30 AEDT, where we’ll want to see if the uptick in business confidence evident in NAB’s survey yesterday also translated to the consumer (the September reading, which will have captured the impact of China-led global equity market ructions, saw confidence fall to 93.87 from 99.46).

With Asian EM developments continuing to have significant feedback to the AUD (and NZD) markets, the Monetary Authority of Singapore’s Monetary Policy Statement (1:00 AEDT) will be of interest beyond the island state’s borders. We expect some form of policy easing, most likely via either a re-centring of the band the MAS targets for the SGD Nominal Effective Exchange Rate (S$NEER) or a reduction in the slope of the band (future appreciation path) to zero from about +1% which we currently estimate.

Any easing measures should see SGD re-weaken after the recent rally, with spill-over effects to other
regional currencies and perhaps too AUD and NZD.

We get into the thick of the week’s US data calendar tonight, courtesy of retail sales, producer prices and the Beige Book summary of regional economic condition prepared for the benefit of the FOMC’s 29 October deliberations. This is quite significant in the context of the comment from several FOMC members still; claiming this month’s meeting ‘is ‘live’ – not a view we share..

Overnight

• On global stock markets, the S&P 500 is -0.30%. Bond markets see US 10-years -3.89bp to 2.05%. On commodity markets, Brent crude oil -1.40% to $49.16, gold+0.1% to $1,166, iron ore -2.9% to $54.97. AUD is at 0.7265 and the range was 0.7254 to 0.7364.
• German ZEW survey Current Situation 55.2 (64.0E, 67.5P)
• German ZEW survey Expectations 1.9 (6.5E, 12.1P)
• German Sep CPI (Final) 0.0% (0.0% prelim, 0.0% E)
• UK Sep CPI -0.1% (0.0%E, 0.0%P)
• US NFIB Small Business Optimism 96.1 (95.5E, 95.9P)

For full analysis, download report:
• Markets Today: 14 October 2015 (pdf, 284KB)

For further FX, Interest rate and Commodities information visit nab.com.au/nabfinancialmarkets

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