September 15, 2015

Markets Today: Where is everybody?

There is a flurry of opinions, newsflow, chatter and speculation about the Fed this week, but at the end of the day, there isn’t much that is new to report for markets. Still waiting for the FOMC.

There is a flurry of opinions, newsflow, chatter and speculation about the Fed this week, but at the end of the day, there isn’t much that is new to report for markets. Still waiting for the FOMC.

The AUD has been an outperformer, continuing the unwinding of the extended short positioning. This may continue into the Fed meeting, in the absence of an external shock. We still see the AUD lower over time, but likely from a higher starting point. That tends to be the way when everyone gets so very negative, as it was last week.

Equity markets were soft in general, and China saw the late afternoon pattern of: decline, support in the majors, then ending the day a little weak, but off the lows. This may weigh on regional sentiment this morning. Commodity prices were weaker and yields a little lower.

Two related stories caught my eye today, in a quiet news session. One, a Bloomberg story on the drying up in liquidity in the FX market during periods of market volatility. The other, from the Bank of International Settlements (BIS) regarding the drying up of bond market liquidity in a period of higher volatility. Both discuss the widening of bid – ask spreads (the difference in price between buying and selling) as well as the lack of available assets to transact. This is an increasing theme in markets and one which has changed. The reports put it down to (in part) a decline in proprietary trading, lower risk taking in general by intermediaries which decreases the willingness of banks to act as intermediaries. And perhaps central bank buying (QE) which lowers the available stock (in bonds). Time will tell if this persists, but in periods of higher volatility, market moves can be exacerbated even further by this phenomena; something to keep in mind.

Australia changed its Prime Minister yesterday, with Malcolm Turnbull taking over from Tony Abbott. This has no implications for markets.

Coming Up

Things are getting a little more interesting today, but with the FOMC hanging over markets, it might be difficult to establish a trend. Today’s RBA minutes are not expected to produce any new information, particularly after the RBA speeches last week.

The BoJ are meeting today, it might be a little early for an increase in asset purchases at this stage, but there is an opportunity for the BoJ more formally to signal their wish to push for more economic support. We will be monitoring for any mention of slippage in the economy or meeting their inflation target. The JPY has a little more scope for depreciation particularly now that short positioning has been unwound and there is less of a ‘risk-off’ tone to markets.

The fact that, in the G3, there is scope for easing from two (ECB, BoJ) should balance against the tightening of the major (FOMC). True, not all central banks are now equal, with the FOMC having a broader reach but as these central banks become active again, in opposite directions, there is the potential for greater market movement. And not all of it negative. This month is possibly too early for all three, and their decisions are no longer independent of each other, but they do have implications for markets. Thus, today’s BoJ meeting may be more interesting than in the recent past.

In the UK, the CPI inflation data is not expected to show signs of imminent BoE action. The August data may indicate a rebound from the July weakness, but the annual numbers are likely, similar to elsewhere, to show a particularly benign inflation environment.

European trade should show continued strong surpluses, although a little lower than the prior month. But it is likely the German ZEW survey which drives market sentiment. That is expected to come off a little this month. There was a surprise up-tick last month, so some payback is expected.

In the US, the retail sales are the key event. This is expected to show continued improvement. The surprise drop in the Empire survey last month is also expected to reverse. It would be shock if it does not, but it is a volatile series. So while improvement is expected to be the theme, it may be difficult for the USD to stage a strong rally, ahead of the FOMC meeting.

It was R U OK day last week. Our colleague, and Australian Head of FX sales, Derek Borg, is cycling to Noosa to raise funds for MindSpace, a youth mental health charity. NAB readers can find details on the NAB intranet or everyone can check it out at


On global stock markets, the S&P 500 was -0.50%. Bond markets saw US 10-years -0.88bp to 2.18%. On commodity markets, Brent crude oil -3.41% to $46.5, gold+0.4% to $1,108, iron ore -1.5% to $58.10. AUD is at 0.7137 and the range was 0.7063 to 0.7152.

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Markets Today – Sweet Spot

Markets Today – Sweet Spot

30 November 2023

Bond markets have been supported by some market-friendly data and while Fed speakers were again mixed, it was the more dovish remarks that captured attention.

Markets Today – Sweet Spot