It was a night for risk assets again with the S&P closing out its fifth day of gains, up another 1.85% with EM and European equities also performing well, the Eurostoxx 600 index up a cool 3.01%, with a sea of green gains across this writer’s screen. The likes of copper (+1.51%) and oil (Brent $49.41, +$1.28/bbl) fared better while in the currency sphere, the AUD was up another 0.57%, testing above 0.71 and trading just below the figure as we head into Asia trade today and the RBA Board meeting this afternoon with China continuing their holidays. The VIX volatility index is back below 20 and has not closed at these levels since before market volatility escalated in the latter part of August.

Meanwhile, while the US market might be taking some comfort from the fact that Fed lift-off looks to have been delayed again, the data prints overnight – mostly the Service/Composite PMIs – revealed further easing in growth on both sides of the Atlantic, the more so in the UK and the US than for the single currency zone, though US services growth still faring relatively well. Just as Fed rate lift-off has been delayed, at least beyond the October 27-28 FOMC meeting, a two point drop in the UK services PMI points to 53.3 points to the UK’s growth rate easing back and the market thinking that BoE rate rise talk is a bridge too far. In a night of risk-on, sterling, the JPY, the CHF, and the EUR all lost some ground, the AUD faring better on the crosses as a result.

The US ISM non-manufacturing ISM eased back a little more than expected, but at 56.9, still OK. The survey headlines were more cautionary, reporting a recent retail slowdown due to stocks volatility, some confidence concerns, and mining dragging down services though with the dollar less of a concern for services.

Coming up

The RBA Board meeting is today’s main event. When all is said and done, we doubt whether the post-meeting Media Release will ruffle the market’s feathers too much. The market is pricing in a 35% chance of an easing with no economist in Friday’s Bloomberg survey forecasting a cut today. Testifying before the House Economics Committee on 18 September, the RBA Governor again emphasised that while further monetary easing could yet be considered at each meeting to support the domestic economy, the Bank also has to consider the potentially greater risks in the financial sphere (house prices). He thought then that the balance was “about right”. Internationally, China remains under close watch and while payrolls risks pushing Fed rate lift-off timing until 2016, the fallout for the AUD, to date anyway, has been incremental rather than game changing.

Before the Board meeting we have the weekly ANZ-Roy Morgan consumer confidence index, followed at 11.30 by the August trade balance. Last month’s trade figures revealed a smaller than expected deficit with a surge in gold exports and flat imports. This report will be analysed to track the performance of resource exports in the midst of a large downturn in the terms of trade but also farm, service and manufacturing exports and whether the decline in the Australian dollar is showing signs of boosting these other avenues for growth. NAB expects a slight narrowing in the trade deficit to be 2,300m (close to the market’s 2400 deficit forecast), consistent with record iron ore loadings at Port Hedland in August.
Before all that is the NZIER Business Opinion Survey at 8.00am.

German factory orders will get some attention ahead of their industrial production figures tomorrow night while in the US, there will be a lot of interest in what the moderate Fed president John Williams has to say about the economy and monetary policy. Monetary hawk Fed president Esther George is speaking too, while the US full trade report for August will almost certainly mirror the worse than expected goods trade data released last week, and that wouldn’t surprise. Canada has its IVEY PMI tonight.

Overnight

Risk assets rising: Eurostoxx 600 +3.0%, Dax +2.7%, CAC +3.5%, FTSE +2.8%. Dow +304 points to 16,776, +1.8%, S&P 500 +1.8%, Nasdaq +1.6%, VIX 19.28 -7.9%. Mumbai +0.5%, Nikkei 225 +1.6% and ASX 200 +2.0%; ASX SPI futures this morning +1.4%. US bond yields: 2s at 0.61% (3), 10s at 2.05% (+6). WTI oil at $46.34 (+1.8%), Brent at $49.39 (+2.6%), Malaysian Tapis (yesterday) $48.89 (+2.2%). Gold at $1135.30/oz (-0.1%). Base metals: LME copper +1.5%, nickel -0.8%, aluminium +0.4%. Iron ore $53.1/t +0.0% Chinese steel rebar futures -0.7%. Soft commodities spot futures: wheat +0.5%, sugar +0.8%, cotton +2.9%, coffee 2.6%. Euro Dec 14 CO2 emissions at €8.21/t (0.7%). The AUD/USD’s range overnight 0.7056-0.7111; indicative range today 0.7060-0.7115; the AUD/USD is 0.7087 now.

EZ Services PMI (final) 53.7 from 54.4 (Prelim: 54.0); UK Services PMI 53.3 (L: 55.6; E: 56.0); EZ Retail sales (Aug) 0.0%/2.3% (L: 0.6%/3.0%)

US ISM non-manufacturing (Sep) 56.9 (L: 59.0; E: 57.5); Labour market conditions index change (Sep) 0.0 (L: 1.2, revised down from 2.1; F: 1.4)

For full analysis, download report:

•   Markets Today: 6 October 2015 (PDF, 353KB)

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