August 6, 2015

Markets Today: Walking on sunshine

Anglo-American pop band Katrina and the Waves - Walking on Sunshine - is 30 years old this year and the rights to the song were sold to Bertelsmann last night for a cool £10mn. The song still generates over £1mn. a year in royalties and endorsements.

They say you’re only as good as your last trade. That may be so, but the last  (and some would say only) good trade from 1980s Anglo-American pop band Katrina and the Waves – Walking on Sunshine –  is 30 years old this year and the rights to the song were sold to Bertelsmann last night for a cool £10mn. The song still generates over £1mn. a year in royalties and endorsements.

On the subject of one hit wonders, it was the US non-manufacturing ISM that inspired almost all of last night’s price action. Following on from Dennis (the Menace) Lockhart’s comments on Tuesday night that the onus was on the data to prevent the Fed from lifting rates in September, last night’s’ report fell squarely into the category of incoming data releases that argues strongly in favour of September ‘lift-off’.  The headline reading of 60.3 (up to 56.0 in June) punched the lights out relative to the 56.2 expected. Detail are equally impressive with new orders rising to 63.8 from 58.3, business activity to 64.9 from 61.5, prices paid to 53.7 from 53.0 and employment particularly strong, lifting to 59.6 from 52.0.

Remembering that services makes up 80% of the US economy, this  employment sub-series is far more relevant than its manufacturing ISM equivalent as a guide to Friday’s non-farm payrolls report. And much more so than the widely discredited ADP employment report and where the disappointing July print of 185k has limited information value regarding the risk to the current consensus for tomorrow’s payrolls print of +225k.

We also had the June US trade numbers last night but where the $43.0bn deficit is close to what was assumed in last week’s Q2 GDP estimate and so has limited implications for revisions (other data since the GDP report is however pointing to an upward revision to the 2.3% Advance reading).

Earlier, final Eurozone services PMIs came in little changed from the ‘flash’ estimates, while the (first and only) UK services reading slipped to 57.4 from 58.4, beneath the 58.0 expected.  This didn’t prevent The British Pound from being the second beast performing G10 currency overnight (GBP/USD +0.25%) in front of today’s trifecta of BoE policy meeting outcome, Minutes and Inflation Report (see ‘Coming Up’).  The worse performing currencies have been the NZD, JPY and AUD. Commodities generally remain pressured, while the Fed policy connotations of the US ISM report helped lift USD/JPY above its recent ¥124.58 high to briefly pierce ¥125 for the first time since 8 June.

Coming Up

Locally, the Labour Force Survey holds sway this morning.  NAB expects the July release to continue its recent trends. The market consensus is for employment to increase by +10k m/m, and NAB expects a slightly softer employment reading of +5k. With employment growth expected to be slightly below the level needed to hold the unemployment rate steady and with the unemployment rate already close to a rounding barrier, markets are expecting the unemployment rate to tick-up slightly to 6.1%.

As for likely market reaction, my colleague Emma Lawson, in a forthcoming research note, observes that the labour market report consistently features as a top five data economic release for absolute daily AUD and interest rate reactions.   We can typically expect a 20k miss from expectations, and AUD is biased to move sharply on such a miss. With market estimates biased to the upside, AUD/USD having just come  off its lows and a market that is still short AUD, we would expect to see a higher AUD, and likely higher yields too, from a better than expected outcome, than much lower AUD/yields on a weaker than expected result. This is caveated by the fact the data comes before Friday’s payrolls that has the tendency to mute responses heading into the US trading day.

Offshore this evening, the Bank of England has the unenviable – but self-inflicted – task of simultaneously publishing the outcome of its latest policy deliberation alongside the minutes of the meeting (with voting record) and too the quarterly inflation report. What could possibly go wrong?  For all that, the UK interest rate markets and GBP will likely turn sharply on whether we see the first dissents against unchanged policy.  Risk is that one or more MPC members are seen to have voted for a rate rise.


On global stock markets, the S&P 500 was +0.30%. Bond markets saw US 10-years +4.86bp to 2.27%. On commodity markets, Brent crude oil -0.74% to $49.62, gold-0.5% to $1,086, iron ore +2.7% to $56.78. AUD is at 0.7356 and the range was 0.7334 to 0.7396.

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NAB’s World on Two Pages – November 2023

NAB’s World on Two Pages – November 2023

24 November 2023

Global inflation slowed in September, including a softening in advanced economy inflation to its lowest level since September 2021. For Australia, we have revised up our forecasts for growth and inflation (in the near-term) while lowering our expected peak in the unemployment rate.

NAB’s World on Two Pages – November 2023