November 18, 2015

Markets Today: No Copper Bottom

It is a bit odd coming in to see hard commodity prices under the pump (including a $2 drop in iron ore prices, new cycle lows for copper and oil off another buck) but the AUD at the top of the G10 FX leader board.

It is a bit odd coming in to see hard commodity prices under the pump (including a $2 drop in iron ore prices, new cycle lows for copper and oil off another buck) but the AUD at the top of the G10 FX leader board. We can I suppose point to a further recovery in global equity prices off the knee jerk moves lower on Monday morning, and a related fall-back in market volatility levels (the VIX is back from 20 to 18). That doesn’t really cut it though (and markets have gone ‘risk-off’ in the last hour – see below – to no ill effect on the AUD). Yet it was also notable to see the AUD bouncing on yesterday’s RBA minutes, that contained absolutely nothing new relative to the post-meeting RBA statement or subsequent Statement on Monetary policy. The price action does speak to a market that is very short AUD and has a lot of bad news baked into the current price. Caveat Venditor.

The overnight moves have encompassed a push back above 1.10 on the AUD/NZD cross for the first time since 2 October. NAB’s FX strategy team believes this move can extend up to at least 1.13 in coming weeks. On the NZD side, another hat tip is due to our BNZ colleague Doug Steel (the ‘milk whisperer’) who once again nailed the latest Global Dairy Trade auction outcome and which produced a 7.9% fall in the GDT index and including an 11% fall in whole milk powder. In truth, there was little evidence of direct selling of NZD on the results, most of the night’s underperformance having occurred well before the auction.

News of a couple of geopolitical scares have crossed the screen in the in the last hour. One, the abandonment of a Germany-Netherlands soccer match after a bomb scare at the German stadium (where Germany Chancellor Merkel was due to attend and where police have now reportedly discovered a truck bomb disguised as a rescue vehicle). And second, news of an incident on a British Airways plane, but which thankfully looks to be a case of someone having one too many G&Ts before take-off, not a terrorist threat. The headlines produced a small safe haven-bid under US treasuries and the news from Germany does look to have led US equities lower into the close.

Little market inspiration has been drawn from the various US economic releases. CPI came in on the screws in both headline and core terms (0.2% m/m, with core remaining at 1.9% y/y). Industrial production was weaker than expected at -0.2% but only because of a big fall in utilities output (on ongoing oil and gas production cuts as well as the depressing impact on demand from warmer than usual weather). Manufacturing output rose by a better than expected 0.4%. The NAHB housing index slipped to 62 from 64 and 64 expected, correcting a little of its recent outperformance versus other housing market indicators.

Earlier, UK CPI printed in line with expectations at +0.1% on the month but -0./1% y/y – the second successive negative annual print for the first time since the 1960s. Markets responded more on the rise in the core rate to 12.1% from 1.0%. (GBP up smalls).

The German ZEW survey of financial analysts saw current conditions slip to 54.4 from 55.2 but expectations up to 10.4 from 1.9, doubtless buoyed by the stronger stock market in recent weeks. The Euro meanwhile continues to bleed lower, the 1.0631 low the lowest since mid-April and amid rising expectations for a sizeable cut to the ECB’s deposit rate on 2 December. If this transpires, it can only enhance the Euro’s status as the pre-eminent funding currency.

Coming Up

Today’s Q3 wage price index is the week’s only local data point likely to draw some attention, though whether it can move markets much is questionable. While the overall below-potential growth rate of the economy and the winding back in costs after the heady days of the resources investment boom has seen wages growth fall back to 2¼%, recent anecdotes and reports don’t point to a further material step down in overall wages growth. In all likelihood, quarterly growth in the ABS wage price index – a synthesised measure of underlying unit wage costs that therefore tends to be smooth – will remain at 0.6% with annual growth at an unchanged 2.3%. This is also the market consensus.

Also due today is NAB’s Q3 Commercial Property Survey and our Westpac’s leading Index. .

Internationally, the minutes of the October FOMC meeting (06:00AEDT Thursday) should be the highlight, even if they conform to their usual ‘something for everyone’ pedigree. China property prices will rate a mention (12:30 AEDT) and which in October saw nationwide average property price deflation easing to -0.9% on Reuters’ calculations.

There’s a raft of central bank speakers on the calendar. From the Fed the most interesting should be a speech by newly appointed (8 Sep) Dallas Fed president Robert Kaplan, who discusses economic conditions. Lockhart, Mester and Dudley are all due to speak as well, but at a payments conference. For the ECB, we get Yves Mersch and Sabine Lautenschlaeger and from the BoE, Ben Broadbent.


On global stock markets, the S&P 500 was -0.15%. Bond markets saw US 10-years -1.06bp to 2.26%. On commodity markets, Brent crude oil -2.06% to $43.64, gold-1.1% to $1,072, iron ore -4.5% to $45.58. AUD is at 0.7118 and the range was 0.7072 to 0.7140.

For full analysis, download report:

Markets Today: 18 November 2015 (PDF, 270KB)

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