Reaction to the missile news has been pretty muted with US equities set to close the day in positive territory seemingly supported by Fed Powell’s preference to ease some regulation. The USD has edged a bit higher, but reaction in UST yields has been pretty muted and like Maklemore would sing the key take away from the Fed Chair in waiting is that  “Same Love” should be expected from a Powell led Fed.

Powell’s prepared statement released yesterday depicted a message of continuity and his appearance before the Senate committee left us with the same impression.  The prepared statement had a few words that could have been interpreted as hawkish and others that could have been read as dovish, but overall it was a pretty neutral statement. At the hearing overnight, the Fed Chair in waiting noted that the case for a December rate hike is “coming together” and then added that “we can afford to go more slowly” with interest rate hikes if inflation stays low, suggesting  that monetary policy next year will be guided by the data.  So as the Fed under Yellen, Powell’s Fed will also be data dependent. Mr Powell also said he expects the central bank’s portfolio of holdings to shrink to a range between $2.5tr and $3 tr over the next few years. Finally in terms of regulation, Powell said that he believes some rules should be re-evaluated to make sure they are efficient and tailored to the risks of individual firms.

US equities are up between 0.4% and 1.07% with financial shares leading the way. Powell’s comments that bank rules are “tough enough” and his backing for a rewrite of the Volcker Rule that would give banks more freedom to trade on a proprietary basis has probably been a factor helping financial’ s outperformed. News that the Senate Budget Committee has voted to present a draft Tax Bill before the Senate has also been a late positive news. Now a vote could take place as early as Thursday.

US data releases overnight were a mixed bag. The Conference Board’s index of consumer confidence beat expectations and rose to a new 17 year high in November (129.5 vs 126.2 prev.), but the trade data disappointed with the October advance trade deficit jumping to a record $68.3bn, from $64.1bn in September. Overall, exports fell by 1% mom, while imports rose 1.5%, going against expectations of a solid export read as depicted by strong ISM export orders index. One swallow doesn’t make a summer, but is not a good start to the Q4 GDP hard data.

The USD has had a good night in index terms with DXY +0.26% and BBDX +0.22%. Looking at the G10 leader board, barring GBP the USD is stronger across the board. NOK is the big underperformer, down 1.04%% despite the fact that oil prices were flat to higher (WTI -0.3% and Brent 1.2%). After BoJ Kuroda’s yesterday confirmed that he sees no sees no problem in Japan’s banking system, quashing any thoughts of an imminent tinkering with the Bank’s yield curve control policy, USD/JPY has been on a steady rise overnight with news of a North Korean missile launch having little impact. USD/JPY currently trades at ¥111.51, up 0.40%. USD strength has also been felt against the euro with the common currency down 0.45%. After trading above the 1.19 mark for most of the day yesterday, the pair has been on a steady decline and currently trades at 1.1845.

AUD and NZD have been bystanders overnight with both currencies little changed. AUD has traded in a 32pips range, initially trading to a low of 0.7588 then reaching a high of 0.7620 and now it has settled just under the figure at 0.7598. The 0.7640/50 area remains a key resistance level for the AUD and given the light domestic calendar today, we think this level unlikely to be tested today.

As we are about to press the send button, our BNZ colleagues note the RBNZ will ease the LVR restriction on Jan-18. No more than 15% (currently 10 %) of each bank’s new mortgage lending to owner occupiers can be at LVRs of more than 80%. No more than 5% of each bank’s new mortgage lending to residential property investors can be at LVRs of more than 65% (currently 60%). NZD reaction so far has been pretty muted with the pair currently trading at 0.6916, essentially unchanged over the past 24HRS.

After a roller-coaster ride, GBP is the outperformer, up 0.34% and currently trading at 1.3368. News of a UK-EU Brexit bill agreement has boosted the pound, after an initial confusion over the veracity of the news. The FT has confirmed that Britain has agreed to fully honour its financial commitments, assuming liabilities worth up to €100bn, although net payments, discharged over many decades, could fall to less than half that amount. So a positive step, but the T’s won’t be crossed or i’s dotted until the 14-15 Dec EU summit and this depends on EU workers’ rights and the Irish border situation.

Coming Up

This morning acting RBNZ Governor Spencer along with his senior team speak before Parliament. Late this afternoon BoJ Nakaso speaks in Tokyo and then in Europe, the Bundesbank releases its 2017 stability Report and the EU Business Climate Indicator is published along with Spain and Germany’s preliminary CPI reading for November. The US gets its second Q3 GDP reading and the Fed publishes its Beige Book. Yellen appears before the Joint Economic Committee of Congress and Fed Dudley and Williams are also on the speaking roster.

In terms of the RBNZ Financial Stability Report, our BNZ colleagues note that commentary on the Housing sector is likely to be of most interest for the market and although there has been some chatter about the Bank signalling a relaxation in the LVR policy, they still believe it’s far too early for it to be doing so.

Spain CPI is expected to rise to 1.9% in November from 1.7% in October while the German inflation is seen at 1.7%, up 0.2% in the month. These CPI readings will be important for the shaping of expectations on the EU CPI reading out tomorrow.

Q3 GDP is expected to be revised up to 3.2% from 3.0% driven by upward revisions to consumer spending and inventory build-up. Notably too, the second reading will also include information on corporate profits.

Overnight

On global stock markets, the S&P 500 was +1.84%. Bond markets saw US 10-years -0.70bp to 2.34%. In commodities, Brent crude oil +1.23% to $63.49, gold-0.2% to $1,292, iron ore +0.7% to $67.76, steam coal +1.4% to $96.40, met. coal +0.5% to $191.00. AUD is at 0.7597 and the range since yesterday 5pm Sydney time is 0.7588 to 0.762.

Good luck,

 For full analysis, download the report:

• Markets Today: 29 November 2017 (PDF, 117kb)

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

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