Markets Today: Show me the money!

The USD is stronger against most currencies and the AUD has given back all of yesterday’s gains amid overnight softness in metal prices.

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Meanwhile, US Tech shares have rebounded overnight and the UST curve is flatter driven by a move lower in longer dated yields. In other news US Special council Mueller has done a Jerry Maguire demanding Deutsch bank to “Show me the Money!!”. Mueller has ordered the bank to provide records of accounts held by President Trump. The move is significant as it suggests the investigation is now directly focusing on the US president.

After trading sideways for most of the previous 24hrs the USD has staged a mini recovery, up against most G10 currencies and also mostly mildly stronger against EM (DXY +0.28% and BBDXY +0.23%). NOK is the outstanding outperformer, up 0.83%, seemingly supported by gains in oil prices. US data released overnight showed US crude stockpiles decreased for a third week, WTI is +0.4% and Brent is +0.8%.

NZD has been the other outperformer partly retaining yesterday’s gains on the back of acting RBNZ Governor Spencer’s speech. The policy message was that the Bank had become more flexible in its inflation targeting approach, revealing a slight hawkish bias, as implicit by the Bank’s projected rate track at the last MPS. NZD met some resistance just over the 0.69 mark and has slipped in overnight trading to 0.6879, still safely within the approximate 0.68-0.70 range the currency has traded in for the last six weeks.

Meanwhile the AUD has had a bit of a roller coaster ride, although it is essentially unchanged relative to yesterday’s opening level. After been the top G10 performer in our APAC session yesterday, the pair now trades at 0.7608. Yesterday, AUD’s performance was driven by better than expected AU retail sales, solid Caixin China PMIs (Services and Composite) and an unchanged RBA but slightly more positive on the economic outlook. These factors helped the AUD to a high of 0.76545 during our session yesterday, but overnight softness in metal prices has seen the pair reversed all of these gains. Although iron ore prices are little changed, copper and nickel fell just over 4% and aluminium dropped just under 1%. Gold was also softer (-1%), so on aggregate amid a stronger USD environment, the commodity story was the main factor weighing on the AUD overnight.

For now, key resistance (~0.77) and support levels (~0.7450/60) for the AUD remain unchallenged with the pair still confined to its 0.7530-0.7660 range held over the past three weeks. QE GDP data is the domestic highlight for today with NAB and the market looking for a 0.7% outcome for Q3 (see more below).

GBP has had another rollercoaster session, lurching down as low as 1.3370 before recovering to 1.3440.  There have been a number of headlines on Brexit issues hitting the screens, with the Irish border issue the key focus at present.  This saga has a few more days to run yet.

US data was mixed overnight, the US trade deficit widened in October to a nine-month high on record imports that reflect steady domestic demand. Meanwhile the November non-manufacturing ISM print fell to 57.4 from 60.1, below the consensus, 59.0. Still, given how elevated the level was in October (highest since 2005) a correction in November seems reasonable. The index remains up from  the 56.9 average in the first half of this year and 54.9 last year.

As a result we have seen the 2y year rate climbing 0.8bps to 1.83% while 10y UST have drifted lower overnight (-2.7bps) to 2.37%.  The flattening of the UST curve remains a focal point amid an increase in conviction of further Fed tightening while 10y UST yields remain unable to make a decisive break above the 2.40% mark.

Coming Up

Australia’s Q3 GDP is the data highlight during our APAC session, retail PMI’s are the focus in Europe and then the Bank of Canada (BoC) rate decision is the big event in North America. Ahead of Friday’s US non-farm payrolls, the ADP employment is also likely to get some attention (190k exp.).

After all the partials released over the past couple of days, there has been no change to the consensus pick for Australia’s Q3 GDP today. NAB is in line with the median forecast at 0.7%qoq and 3.0%yoy. Such an outcome would be a little bit stronger than the RBA’s 0.6% q/q pick. Nevertheless we know the RBA has been growing more confident in its view that the Australian economy will strengthen over the coming year.

The consensus view sees the BoC standing pat today, but there has been a few reputable Banks/independent houses calling for a hike.  Recent strong labour data and buoyant oil prices support the idea of a hike, but after the Bank pulled the market away from water, noting some concerns including a) housing market reaction to the past two hikes b) tighter lending measures c) uncertainties with NAFTA negotiations, in our view it would seem odd to suddenly hike without any warning.

BoC rate hike pricing expectations have been brought forward over the past week (April now fully priced while pricing for a Dec hike is at 17%), nevertheless given current pricing, a hike today would be a big surprise to the market. For your scribe, the bias is for the BoC to prepare the market for a hike over the coming months, sounding upbeat about the economic outlook while at the same time allowing itself a bit of time to see how the NAFTA negotiations play out. Either way, a hike or no hike with a hawkish message should support the CAD today and see front end yields move higher.

Overnight

On global stock markets, the S&P 500 was +0.06%. Bond markets saw US 10-years -0.89bp to 2.36%. In commodities, Brent crude oil +0.74% to $62.91, gold-1.0% to $1,262, iron ore +0.0% to $72.68, steam coal +0.4% to $97.30, met. coal +0.0% to $223.00. AUD is at 0.7604 and the range since yesterday 5pm Sydney time is 0.7597 to 0.7654.

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