November 17, 2016

Markets Today: Tangled up in red

It’s been an overnight session of digestion and reflection for the market, one week on now from the Presidential election.

It’s been an overnight session of digestion and reflection for the market, one week on now from the Presidential election.  US bond yields remain supported, though that’s been somewhat more tilted to the short end of the curve where expectations of a Fed rate hike at the upcoming December 13-14 meeting are all but baked in at a 93% chance, from 92% yesterday.  That pricing was given a little more impetus from Fed speakers overnight ahead of Janet Yellen’s testimony to Congress overnight.

Equity markets closed lower in Europe, while the US session is on the heavy side, at least as far as the Dow and the S&P are concerned; the Nasdaq is outperforming.  The KBW Bank index is down 1¾%, but is still up 11.4% on pre-election levels as the market considers how the Dodd-Frank legislation might be changed.

In the currency world, the USD is still supported, the spot Bloomberg dollar index up 0.34%, this time the AUD/USD the casualty, down below 0.75 in the wake of yesterday’s softer than expected wages data (0.4%/1.9%, a new 20 year low) and mixed-to-softer commodity news.  Iron ore eased $0.60/t to $72.20 yesterday, met coal was steady at $297.25, steaming coal down $1.55/t to $104.90, and base metals mostly lower overnight (the LMEX index by 1.88%).  Even gold has struggled in this listless trading environment.   Oil was supported for a time, but continues to drift lower as the November 30 OPEC meeting beckons nearer.

Fed Presidents James Bullard (voter) and Neel Kashkari (non-voter) have been speaking.  Bullard is the “one and done” man.  He’s been saying that you’d have to see a surprise to stop a December rate hike, even though he’s still of the view that such a hike would move policy to a neutral setting. He spoke of a medium term boost from Trump spending.  Kashkari was less categorical about a December hike, but given already strong market pricing, his comments that he’d be assessing core inflation and the jobless rate at the December meeting could easily be inferred as not arguing against a hike.  (While he’s not a voter this year, he is next.)  US industrial production continued its flatter performance in Oct, while the NAHB Housing index remained strong at 63.

Coming up

The profile event in our market today is the October Labour Force release, what the report says about the trend in employment, a trend that’s been softening recently, exemplified by the move to more part-time, less full-time.

There seem to be sample rotation issues more often than not.  Last month, the Statistician put aside some of the incoming sample for Queensland that revealed a 4K decline and likely would have been even softer but for the “adjustment/exclusion” the ABS made.  Will it be put back this month?  Will NSW show as a softening labour market?

The market consensus for employment ranges from -3K to +40K, the median at 15K.  NAB’s pick is 20K.  We’d put much less reliance on the estimate for the month and instead focus on the trend.  For any one number, the unemployment rate should be the focus in the report, though even here, this year it’s been evident that while the unemployment rate has been steady to lower, the underemployment rate has been rising.  (That latter wider measure is only estimated once a quarter, the next for November due in another month.  NAB expects the unemployment rate to be steady at 5.6%; the market consensus sits at 5.7%.

There are three NZ releases on the schedule but we think it likely the Statistics NZ release will be delayed, but the two ANZ releases Job Ads and Consumer Sentiment will go ahead as planned.

More focus on the UK High Street tonight with the October Retail Sales report, EC revised October CPI, then US Housing Starts, CPI, Jobless Claims.  NY Fed President Dudley is speaking, though only a welcome to a conference in NY, so may produce little of market interest.  Fed Governor Brainard is speaking and on the evolution of work, of interest given the importance of the labour market to policy.  ECB Chief Economist Praet is also speaking on a panel on the future of global financial integration at a Global Research Forum on International Macroeconomics and Finance in NY.  One could think of apposite questions in the aftermath of the US election and the future of Dodd-Frank.

The big event tonight though is Janet Yellen’s testimony to the Congress’s Joint Economic Committee on the economy.  For a somewhat quirkier outlier, we’ll also have our eye on the Banco de Mexico meeting and whether they hike to defend the Peso that fallen further since the US election.  The USD is up over 10% against the MXN since the election.


On global stock markets, the S&P 500 was -0.16%. Bond markets saw US 10-years +0.18bp to 2.22%. In commodities, Brent crude oil -1.06% to $46.45, gold+0.0% to $1,225, iron ore -0.4% to $72.42. AUD is at 0.748 and the range since yesterday 5pm Sydney time is 0.7462 to 0.7545.

Good luck.

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