October 3, 2016

Markets Today: Somewhere over the rainbow

Who says fairy tales don’t come true with the Western Bulldogs and Cronulla both taking the silverware in the AFL and NRL grand finals over the weekend. Great results for both teams.

Who says fairy tales don’t come true with the Western Bulldogs and Cronulla both taking the silverware in the AFL and NRL grand finals over the weekend.  Great results for both teams.

Meanwhile, equity and risk markets did an about face on Friday night with the major US indexes all closing the best part of 1% higher after Agence France Press (AFP) reported that Deutsche Bank and the US Department of Justice were close to agreeing a $US5.4bn settlement of the latter’s mortgage mis-selling claim (cf the initial claim of $US14bn), DB’s stock jumping by 6.3% on the day and close 16.5% up on its early session low. The deal has yet to be confirmed.

The AFP report produced an ‘all change’ across all asset classes with stocks rallying hard, the dollar, Swissie and Yen losing their safe haven bid and US Treasury yields heading back higher. Polls suggesting that Clinton is doing better would not have done any harm either to the emergence of a risk-on mood, including from a FOX poll putting Clinton 5 points ahead of Trump.

The US data was not a big driver of Friday’s market moves, the personal income and spending data not springing major surprises.  Within the August personal income and spending report, the (Fed-targeted) PCE deflators were right in line with expectations, though the Atlanta Fed did revises down their contemporaneous Q3 GDPNow estimate to 2.4% from 2.8% after softer than expected consumer spending and separately reported downward revisions to stocks.

Over the weekend, the China official Manufacturing PMI was rock-steady at 50.4 (f/c 50.5) with the Non-manufacturing PMI up slightly from 53.5 to 53.7 (no forecast), both adding a measure to the continued Chinese growth story and risk on mood continuing.

In FX markets, the US dollar closed last week fairly flat in index terms, the DXY -0.08% at 95.46 and the broader BBDXY -0.06%. USD/MXN fell by 0.9% to 19.38 and USD/ZAR by 1.23% to 13.72.

In G10, the NOK was the biggest gainer (0.79%), CHF the biggest loser (-0.54%), reversing some of the recent DB-related strength. The NZD was up 0.45% to 0.7286, AUD +0.37% to 0.7644, both opening this morning almost bang on those levels. CAD lagged, +0.14% to 1.3127 despite a somewhat better than expected July month GDP data, up 0.5%/1.3% after 0.6%/1.2% (f/c 0.3%/1.0%). USD/JPY rose 0.32% to 101.35, EUR/USD +0.12%, and GBP/USD +0.03% to 1.2972.

It’s the GBP where there has been some price action first thing this morning, dropping around three quarters of a cent to 1.2916 from closer to 1.30 on Friday after UK PM Theresa may announced over the weekend that Article 50 will be invoked by March 2017.  AUD/GBP has jumped as a result, trading this morning at 0.593.

Coming up

The big events in the US this week start with tonight’s Manufacturing ISM that’s expected to tick up from sub-50 to just over 50, then the Non-manufacturing ISM Wednesday and Non-farm Payrolls Friday. Otherwise a quiet week for global risk events with the IMF Annual Meetings Friday-thru-Sunday tying up Central Bankers and Treasury Officials; the latest IMF WEO forecasts are also due but are unlikely to be market moving.

Out this morning we have the BoJ Tankan survey for Q3 with the Large Manufacturers index expected to tick slightly higher to 7 from 6 and the Outlook tipped to increase two points to 8 from 6.  There will be interest also in the Capex outlook.  Bear in mind that this Survey would have been conducted before the recent BoJ meeting. The Nikkei Japan Manufacturing PMI is also out this morning.

Also out this morning locally is the Melbourne Institute’s monthly CPI gauge for September; in August, their measure of CPI was 0.2%/1.2% ahead of CPI at the end of this month. The AiG Manufacturing PMI (L: 46.9) and the monthly September CoreLogic House prices report is also out.

In Australia, it’s a public holiday today in NSW, the ACT, QLD and SA.  It’s a big week ahead with the RBA Board meeting tomorrow, then Retail Sales on Wednesday. Also due are Building Approvals tomorrow and the Trade Balance Thursday, along with plenty of second-tier data with daylight saving having kicked in yesterday, for those states where it applies.


On global stock markets, the S&P 500 was +0.80%. Bond markets saw US 10-years +3.45bp to 1.59%. In commodities, Brent crude oil +1.93% to $50.19, gold-0.5% to $1,317, iron ore -1.1% to $55.86. AUD is at 0.7661 and the range since Friday 5pm Sydney time is 0.7594 to 0.7669.

Good luck.

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