February 3, 2016

Markets Today: Tossin’ and turnin’

In the aftermath of the RBA Board meeting, the AUD was whipped around, initially rallying on “no change”

In the aftermath of the RBA Board meeting, the AUD was whipped around, initially rallying on “no change” and relative Statement comfort with the AUD’s evolution then pulling back as the market absorbed some hints of uncertainty in the Statement about the global and domestic outlook. After briefly trading above 0.71, it succumbed to with further weakness evident overnight amid a renewed plunge in oil prices and any negative spin off from a further 7.3% decline in New Zealand global dairy milk auction prices overnight. The AUD has been one of the poorer performers of the major FX leader board trading at 0.705 in early Asia trade this morning. One currency that’s performed a little better has been Sterling in the wake of proposals being put to the UK from the EC to forestall the risk of “Brexit” ahead of an EU Summit on 18-19 February.

West Texas Intermediate is down another $1.68 to $29.94, Brent declining in tandem, sentiment not helped by BP’s results. The S&P 500 energy sector is down by 3.2% into the last hour of trade, European stocks declining by 2% and the broader US indexes following suit. US Treasury yields joined in with the 10 year Treasury yield down 9 basis points 1.86% and the market pricing for fed funds at the end of this year down another hefty 6bps to 0.53%, implying little more than 50% chance of one rate hike by year’s end. There was no US or European data of significance overnight.

Resident Fed Hawk Esther George was speaking overnight and lived up to expectations saying that financial turmoil is no reason to slower rate rises and that low rates can exacerbate risk taking.

Coming Up

First up this morning sees some focus on the NZD with release at 8.45 of Q4 labour market report. NZ’s unemployment rate is expected to tick higher from 6.0% to 6.1%, coming with a return to employment growth and a rise in participation. That’s coming with key Q4 NZ wages data, then a speech from RBNZ Governor Wheeler at 11.

Australian data cranks back up with December trade and building approvals at 1130. Each is among the most volatile monthly reports, not as market sensitive as Friday’s retail sales, but always worth monitoring for December report due Friday. We will we will be watching for signs for what trade says about the slowdown in China and for building approvals what it says about the slowing in the building development cycle. The market is looking for a trade deficit of $2450m and a 4.5% rise in approvals after a 12.7% decline and with AUD sentiment looking rockier this morning. First up this morning is the AIG PSI services index for January; it was 46.3 in December. The final estimate of China’s private sector Caixin services index for January is also due today, at 1245. The preliminary reading was 50.2. BOJ Governor Kuroda is speaking today in Tokyo at 1.30, sure to be widely scrutinised after Friday’s monetary easing.

In the European session the final estimates of the services and composite PMIs are released and for the UK too along with Eurozone retail sales. Then there’s ADP employment and the ISM non-manufacturing index that is expected to be little changed from December’s 55.3 at 55.1 in January.


Overnight markets see another rocky session: Eurostoxx 600 -2.1% , Dax-1.8%-1.8%, CAC -2.5%, FTSE -2.3%. Dow -305 points to 16,144, -1.9%, S&P 500 -1.9%, Nasdaq -2.3%, VIX +10.5%. Shanghai +2.3%, Mumbai -1.2%, Nikkei 225 -0.6% and ASX 200-1.0%; ASX SPI futures this morning -1.4%. US bond yields: 2s at 0.75% (-5), 10s at 1.86% (-9). WTI oil at $30.02 (-5.1%), Brent at $32.77 (-4.3%), Malaysian Tapis (yesterday) $35.08 (-5.9%). Gold at $1128.20/oz (+0.0%). Base metals: LME copper -0.2%, nickel -0.7%, aluminium -1.3%. Iron ore $43.8/t +1.9%, Chinese steel rebar futures +0.2%. Soft commodities spot futures: wheat -0.1%, sugar +1.2%, cotton +0.8%, coffee 1.8%. Euro CO2 emissions price (Dec 16) +2.3%. The AUD/USD’s range overnight 0.7039-0.7089; indicative range today 0.7005-0.7075; the AUD/USD is 0.7048 now

EC unemployment (Jan) 10.4% (L: 10.5%: E: 10.5%)

ISM New York (Jan) 54.6 (L: 62.0)

Good luck

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