Markets Today: Good day sunshine

The news on the state of the US and European economies has been good overnight, adding more sunshine to the global growth acceleration story.

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It’s also been a night of contained currency moves, the USD still waiting for substantial news on tax reform and who the next Fed Chair will be, both supposedly arriving Thursday US time.  There’s also the key data ahead with the ISM Manufacturing report tonight and Payrolls Friday.  The USD is little changed, US equities are up modestly, bond yields are little changed, while commodity prices are mixed, the exception being oil with WTI and Brent both making further gains.

The economic news out of Europe was the first to hit the screens with the first release of Eurozone GDP for Q3 up 0.6% for annual growth of 2.5%, both a tenth more than expected.  The result also came with a one tenth upward revision to Q2.  This outcome came with lower than formally-expected CPI for October at 1.4% (down from 1.5% that was also expected in the month).  It was however anticipated after a one tenth lower print from Germany’s CPI the night before.  The Euro was bought back after this data set, back to around where it was this time yesterday, trading at 1.165.

Ahead of the BoE meeting tomorrow night, the Pound has been getting some support overnight, up by a net 0.52%.  Market pricing for a BoE rate hike tomorrow night edged a little higher from just under a 87% chance to a near 88% chance as UK short end yields pushed marginally higher.  Brexit news also did the Pound no harm, the UK and the EC agreeing that talks need to be accelerated with the UK’s Davis to meet with his counterpart Barnier on Friday week.  It’s been reported that the UK Cabinet discussed a range of scenarios on negotiated Brexit outcomes.  There was also a paper outlining impacts on industries, though this hasn’t been released.

The economic news out of the US was also hot.  It was a combination of stronger than expected prints from the October readings on the Chicago PMI and the Conference Board’s measure of Consumer Confidence coming with a (forecast) pick up in the Employment Cost Index (ECI) in Q3.  Consumer Confidence came in at a very high 125.9, the best since 2000 with the Net Jobs Plentiful component at 18.8, the strongest since 2001.  The ECI rose 0.7% after 0.5% in Q2.  This year’s readings have been the highest since the GFC/pre-GFC, playing to the view that a pick-up in inflation remains in play, added to further by rises in oil prices.

The AUD lost traded lower during the afternoon session yesterday after a softer than expected official China Manufacturing PMI (and lower RBA Credit growth).  It’s trading at 0.7650/60 this morning.

Coming up

The most sensitive of the local data points today is the Q3 NZ labour market/ wages reports (8.45), important for the Kiwi, while the Caixin Manufacturing PMI out at 12.45 will be watched to see whether it was steady at 51.0 as forecast or weakened like yesterday’s as the Government slows heavier-polluting industries.

Running into a very tight-looking election, NZ businesses were reporting robust hiring. But how this (ever) translates into the quarterly employment estimates is a lottery. The Q2 HLFS registered a 0.2% fall in employment, but a lower jobless rate at 4.8% from a lower participation rate. For Q3 our BNZ colleagues expect a 0.7% employment rebound and a 0.1 fall in unemployment, to 4.7%. The market also expects a 0.7% gain in jobs, but a steady unemployment rate.  In its August MPS, the RBNZ expected 4.7%.

As for wages and salaries, the Q3 Labour Cost Index is tipped to rise 0.7%, lifting the annual rate to 1.9% from 1.6%. This print brings in a care-workers’ pay-equity settlement with the government bringing some hefty pay increases (and with wider proposed minimum wage increases coming). It’s not clear if the market has made allowance for the pay-equity settlement, as it expects the Q3 LCI to increase a steady 0.5% in the quarter.

In Australia, it’s quiet for key market-sensitive data with the AiG PMI Manufacturing index (L: 54.2), the newer CBA version (L: 53.8) and CoreLogic’s Oct house prices report to reveal close to no growth in prices.

There’s the UK BRC Shop Price Index for October too

(L: -0.1%), while there’s also BoJ Deputy Governor Nakaso speaking at a FinTech forum later at 16.00, though whether he’ll say add more on the inflation outlook after yesterday’s policy meeting remains to be seen.  The RBA release their October Commodity Prices report this afternoon: it’s of virtually no immediate market interest but tracks movements in the terms of trade closely.

Tonight, there’s UK Nationwide house prices, BoE Deputy Governor (Financial Stability) Jon Cunliffe is speaking at the House of Lords.  Then there’s the expected “no change” statement from the FOMC and the US ISM Manufacturing report that’s expected to be still solid at 59.4 after 60.8 in September.  More overshoot coming?

Overnight

On global stock markets, the S&P 500 was +0.09%. Bond markets saw US 10-years +0.73bp to 2.38%. In commodities, Brent crude oil +0.83% to $61.09, gold-0.5% to $1,272, iron ore -0.4% to $58.52, steam coal +0.5% to $99.90, met. coal -4.6% to $173.50. AUD is at 0.7655 and the range since yesterday 5pm Sydney time is 0.764 to 0.767.

Good luck.

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