December 8, 2015

Markets Today: More commodity carnage

Commodities were front and centre of market attention overnight, with oil prices taking another sizeable hit, both WTI and Brent crude down between 5-6% in the wake of OPEC officially abandoning its 30mb target late last week.

Commodities were front and centre of market attention overnight, with oil prices taking another sizeable hit, both WTI and Brent crude down between 5-6% in the wake of OPEC officially abandoning its 30mb target late last week. The price of oil has made new lows for the year, and is at the lowest level since early 2009. Elsewhere in the commodity space, base metals also declined, as did gold, while the price of iron ore is down another $0.97, -2.42% to $US39.06/t with the Australian shipment of iron ore continuing at a heady pace. Shipments out of Port Hedland were 37.3mt in November, up 2.2% from October and 8.5% from year earlier levels.

Not surprisingly, commodity currencies have taken some heat, and this time the AUD has given back some ground trading back down to the mid 72s, down 1% overnight unable to sustain support the face of unrelenting commodity headwinds. Ahead of the RBNZ meeting on Thursday with the market split view on whether the Bank will cut or not, the NZD declined by a lesser 0.44%. With commodity currencies weak, the USD has a little further, though not against the Euro and the yen that have more than holding their ground.

Weighing in with his views on lift-off, St Louis Fed President James Bullard (hawkish, non-voter) added his voice supporting lift-off saying that it should be seen as good news for the US economy. He said the US labour market is doing very well and in his views unemployment will fall to the low 4% range. He also noted that the Fed’s is watching inflationary expectations very carefully and they have not been unhinged. Pricing for Fed lift-off next week inched a little higher to 78% overnight.

And finally, one to pop into the memory banks for future use. Released yesterday by the RBA as a Research Discussion Paper Okun’s Law and Potential Output”, RBA research estimated that potential output for the Australian economy is currently running a bit below 3%. We mention that because at 2½%, Australia’s growth to Q3 was running not far shy of that potential (something Stevens also mentioned last week in Perth), hence a steady rate of unemployment at around 6%.

Coming up

First up for Kiwi dollar watchers this morning there are two second tier releases, and financial accounts for October at 8 AM a EDT followed 45 minutes later by Q3 manufacturing. Weekly ANZ-Roy Roy Morgan is released 930 followed at 50 by expected upward revision to Q3 GDP for Japan, from -0.2 to flat for the quarter.

The market though will be focussed on the November NAB Business Survey at 11.30, followed (~2pm) by the November Chinese trade numbers, the latter setting growth sentiment ahead of Saturday’s trio of Chinese economic activity reports for November. As a reminder, the NAB business survey for October revealed a pullback in business confidence but steady business conditions, all three components of the business conditions index little changed. The NAB survey is becoming increasingly market sensitive as an up-to-date pervasive indicator on the growth condition of the Australian non-farm business economy, including what the survey says about the differential performance across states and industries.

In Europe, there is a later vintage of Eurozone Q3 GDP though no revision is forecast. In the US, there is the NFIB small business optimism index for November, a small increase tipped from 96.1 to 96.4, followed later by J0LTS job openings data for October, more underlying flow details behind Friday’s non-farm payrolls. Neither is likely to impact too much on market pricing for the Fed and the dollar. For Canadian dollar watchers, Bank of Canada Governor Poloz is speaking as well as Canadian housing starts and building permits data.


Oil slumps further; iron ore down too, as is the AUD : Eurostoxx 600 +0.5%, Dax +1.2%, CAC +0.9%, FTSE -0.2%. Dow -175 points to 17,673, -1.0%, S&P 500 -1.0%, Nasdaq -1.1%, VIX 16.90 +14.1%. Shanghai +0.3%, Mumbai +0.3%, Nikkei 225 -1.1% and ASX 200 +0.1%; ASX SPI futures this morning -0.3%. US bond yields: 2s at 0.93% (-1), 10s at 2.22% (-5). WTI oil at $37.55 (-6.1%), Brent at $40.69 (-5.4%), Malaysian Tapis (yesterday) $42.63 (-2.6%). Gold at $1071.70/oz (-1.1%). Base metals: LME copper -1.2%, nickel -2.4%, aluminium -1.9%. Iron ore $39.1/t -2.4% Chinese steel rebar futures -0.7%. Soft commodities spot futures: wheat -0.3%, sugar -1.2%, cotton -0.2%, coffee -0.7%. Euro CO2 emissions price (Dec 15) -1.3%. The AUD/USD’s range overnight 0.7256-0.7336; indicative range today 0.7240-0.7305; the AUD/USD is 0.7266 now

EC Sentix Investor Confidence (Dec) 15.7 (L: 15.1; F: 17); German industrial production (Oct) 0.2%/0.0% (L: -1.1%/0.4%; E: 0.8%/0.7%)

US Labour Market Conditions Index change (Nov) 0.5 (L: 1.6; E: 1.6)

Good luck.

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Markets Today: 8 December 2015 (PDF, 317KB)

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