November 23, 2016

Markets Today: Magic bus

The USD continued to march a little higher, the Bloomberg spot dollar index up another 0.14%, gains mostly against the Euro, the Yen, and Sterling, the latter from some self-inflicted news.

The USD continued to march a little higher, the Bloomberg spot dollar index up another 0.14%, gains mostly against the Euro, the Yen, and Sterling, the latter from some self-inflicted news. US data has been second tier and there was interest in a video released by President-elect Trump on his plans for the first 100 days in office.  Withdrawing from the Trans Pacific Partnership (TPP) received front billing along with cancelling job-killing restrictions on energy industries and also proposing that for each new regulation, two have to be abolished.  No mention of the wall or deporting illegal immigrants in the video.

After rallying the day before on the prospect/possibility of a softer Brexit, Sterling has fallen back from 1.25 to 1.24 and below (it’s trading close to the figure this morning) after UK Brexit negotiator David Davis meeting with EU parliamentary negotiators.  The news has been that the post Article 50 window might be as short as 14-15 months according to the EU, not two years.  Watch this space.  Meanwhile, the UK CBI industry survey was better than expected for November, orders among the highest level since early 2015 and selling prices moving up, the weaker Sterling playing a role in both.

While the USD has been bid, the AUD/USD has made some modest net gains and trades close to 0.74 this morning.  RBA Chief Economist Chris Kent spoke last night on Australia’s economic transition across the States.  For the economy overall, he reported that while their main economic forecasts were little changed, he again noted the upward revision to the terms of trade, commodity prices turning in his words from a “substantial headwind of recent years to a slight tail breeze providing some support to the growth of nominal demand”.  They don’t expect mining investment or wages to head back up.  (Iron ore prices bounced back overnight, up $4.56/t to $74.90; met coal spot prices off $0.50 to $299 and thermal coal up $1.20 to $106.30; Chinese Dalian iron ore futures rose 8.8% yesterday!)

Against the better terms of trade news, he balanced that with less upbeat reflections on the performance of the labour market, referencing the rise in part-time employment and rising underemployment.  On wages he did say that their liaison program indicates some wage pressure, but would not like to see (published) wages growth “fall from here”, a reference to the new low in the wage price index.  He also made mention of faster growth in population and housing in Victoria, mentioning the relatively higher cost of housing and longer commute times in Sydney compared to Melbourne.

Coming up

There are some reasonably meaty data and other events coming up over the next 24 hours or so.

There’ll be initial focus on the local Construction Work Done for Q3 ahead of GDP due December 7.  NAB and the market look for the read to be dominated by a further decline major resource project pending, a decline of 1.6% picked for the quarter. All of this pretty much feeds into different GDP slots as it includes the initial estimates of dwelling investment, public sector building, non-residential building and (resource dominated) engineering construction.

Then there is the flash Eurozone PMIs for November, and later in the European session UK Chancellor Hammond’s Autumn Statement with its new economy forecasts and outlook for the Budget and fiscal policy.  Mostly priced in given the leaking of the main elements, including on infrastructure spending as a centrepiece.

Hammond has promised a “fiscal reset”, even though better than expected data since the poll has damped appetites for a large fiscal boost, for now anyway.  The market will pay attention to the independent Office of Budget Responsibility downgrade of its March 2016 forecasts, perhaps toward the BoE’s forecast of 1.4% growth for 2017, if not the Bloomberg consensus that’s 0.9%.  There’ll also be some statement from the OBR about whether the Government seems likely to meet its fiscal surplus, debt and welfare rules, a likelihood that already looked problematic before the poll.

There are five major releases in the US, starting with the October durable goods orders report and finishing with the November 1-2 FOMC Minutes.  Between these are weekly Jobless Claims (a day early ahead of Thanksgiving), New Home Sales, and the first full-blown read on post-election consumer sentiment and inflationary expectations from the flash November University of Michigan survey.  A December tightening is as close to 100% priced in, 23.7 of the 25 points in the curve.


On global stock markets, the S&P 500 was +0.13%. Bond markets saw US 10-years +0.19bp to 2.32%. In commodities, Brent crude oil +0.61% to $49.2, gold+0.0% to $1,210, iron ore +6.5% to $74.90. AUD is at 0.7397 and the range since yesterday 5pm Sydney time is 0.7372 to 0.7413.

Good luck.

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