New Zealand finished on top by a significant margin over the weekend, keeping its nose ahead despite hints of a late-session comeback from Australia. We’re of course referring Friday’s major-currency performance (NZD +1.3%, AUD +0.9%). Parallels might be drawn to a certain rugby match on Sunday morning, but your (usually Wellington-based) scribe wouldn’t dare be so callous as to draw such conclusions.

Unlike Wednesday and Thursday morning (post FOMC, RBNZ), Friday was not a big night for markets and following the BoJ’s earlier ‘no change’. End of month rebalancing flows appeared to dominate price action, meaning a slightly softer US dollar (DXY -0.35%, BBDXY -0.42%) and following strong US equity gains over the month that will have left some asset managers who passively hedge currency risk, under hedged on US exposures.

US equities were moderately softer after what has been a big up-month following the August-September swoon. After a small up-day for Eurozone equities (Eurostoxx 50 +0.14%, Dax +0.46%) the S&P500 lost 0.48% (putting the October change at +6.6%), The Dow -0.52% (+7.2% on the month) and the NASDAQ -0.4% (+7.3% m/m). VIX gained 0.46 to 15.07, a rise of 0.61 on the week.

CFTC data for the week ended Tuesday 27 October is notable for a sharp rebuild in EUR speculative shorts following the December ECB easing message delivered by President Draghi during this reporting week. Net shorts here extended to -105.9k from -62.6k, taking the overall USD speculative USD long vs. G10 currencies up to 183.9k from 119.8k.

Net shorts in AUD were little changed, -36.4k from -38.4k, so continuing to highlight potential for a decent bounce if the RBA stands pat on Tuesday.
Sydney’s auction clearance rate ticked higher to 63.5%, up from the low 61.3% in the previous week, but still well down compared to this time last year (75.6%). Melbourne’s clearance rate fell further to 65.4%, from 69.7% previously. The preliminary nationwide auction clearance rate was 63.3%.

San Francisco Fed President John Williams gave an interview to the Associated Press in which he said that language in the (FOMC) statement was meant to put financial markets on notice that December is very much a live meeting. He said ‘there was a lot of commentary I heard (after the October meeting) that the Fed is going to be on hold until next year’. But he said the Fed has yet to decide when to raise rates and that he wants to study more economic data in coming weeks before deciding whether the economy is strong enough for the Fed to raise rates.

ECB President Draghi attempted to inject some mystery into whether the ECB will ease policy further in December, telling an Italian newspaper that it is still an “open question” whether further stimulus will be necessary. The interview, published on Saturday, is likely responsible for EUR’s 30pt pop at the open today. Understandably, after his theatrics in Malta, investors are well past whether stimulus will delivered, and more concerned with how much, and in what form.

Coming Up

While the RBA dominates the local skyline this week, in the bigger picture today’s US manufacturing ISM but more importantly Friday’s October payrolls report will be the key fundamental drivers for markets. We also get the Caixin China PMI numbers for both manufacturing and services, at 12:45 AEDT today. On payrolls, the consensus estimate according to Bloomberg is for +180k and for an unchanged 5.1% unemployment rate.

NAB expects no change from the RBA on Tuesday but is on guard for a possible tweak to the language that indicates the ‘scope’ to cut rates if needed. The latter would limit the extent of any bounce in AUD of the RBA, but NAB’s FX Strategy team still wants to be long into the decision (and did this on Friday, post BoJ, via setting a long AUD/JPY position).

Overnight

• On global stock markets, the S&P 500 was -0.50%. Bond markets saw US 10-years -3.04bp to 2.14%. On commodity markets, Brent crude oil +1.56% to $49.56, gold-0.5% to $1,141, iron ore +0.4% to $49.83. AUD is at 0.7119 and the range was 0.7084 to 0.7148.

For full analysis, download report:

• Markets Today: 02 November 2015 (PDF,323KB)

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