Markets Today: The Waiting

Tom Petty described The Waiting as a song about waiting for your dreams and not knowing if they will come true.

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Not quite for their dreams perhaps, but markets are now in waiting for a some pretty big event risks to pass in the next few days: waiting to see if tonight’s US employment report is strong; waiting to see some agreement on a US tax bill; waiting to see if the US government will need to shut down; waiting to see if UK PM Theresa Mail can pull together an agreement by Sunday on the Irish border question in time for next week’s EU Summit.

And then waiting to see if England can avoid having to hand over the Ashes trophy to Australia in Perth the week after next.  I’d put shorter odds on the first four of these than the last one, much as it pains a POM to be saying it.

As of right now, the Aussie dollar is threatening a test of the psychological 75 cents levels, having taken its second big hit of the week yesterday on very disappointing trade data, this following on the heels of the weak consumption data contained within Wednesday’s GDP numbers. Weakness in iron ore exports was the main culprit.

Overnight we’ve seen a sharp fall in iron ore futures prices on the Dalian exchange (down around 4%) and this looks to have added a bit more insult to injury.  If not beforehand, any disappointment in today’s November China trade numbers (e.g. weaker than expected imports) could be the catalyst for a break below the 75 cents level. If not from that, then from a stronger US dollar out of tonight’s US payrolls report   (see Coming Up).

AUD, indeed all the dollar bloc commodity currencies (AUD, NZD, CAD) have weakened overnight despite it being a fairly risk-positive offshore session (US stocks look like breaking a four day losing streak, the VIX is back  down close to 10, and the Yen is almost as weak as the Aussie and the kiwi). USD/JPY gains have been aided by a 3bps rise in US 10 year Treasury yields, to 2.37%.

Sterling has actually been the most volatile currency in the last 24 hours, trading between $1.3320 and 1.3480 on first pessimism then optimism regarding prospects of an agreement to advance to Brexit transition and trade talks following next Thursday and Friday’s EU Summit. The deadline for an outline agreement on the Irish border issue is now said to be this Sunday.

Commodities in general are mostly weaker overnight, including an $18 drop in gold to its lowest levels since late July, though oil is higher again and copper at least hasn’t extended Wednesday’s sharp drop.

On the subject oil, or rather oil riches, I have walked in to the news that the 32 year-old Saudi Crown Prince Mohammad bin Salman was the true buyer of the da Vinci painting that sold for a record $450.3mn two weeks ago.

Impressive but still less so that the latest surge in the Bitcoin price, which crossed the $15,000 threshold overnight compared to its 2017 starting price of around $800. A $24mn investment at the start of the year would have yielded you enough crypto-cash to have outbid the Crown Prince.

Coming Up

China trade data (for November) is out during our time zone and might garner more than the usual interest after yesterday’s (October)Australian trade data showed surprisingly weak iron ore exports.  A much weaker than expected China import number (expected 12.5% y/y down from 17.2%) has the potential to take a fresh bite out of the AUD. Exports are seen +5.3% down from 6.9% in October and the overall trade balance at $35bn, little changed on October’s $38.2bn.

Also during our time zone Australia has the breakdown of October mortgage lending (investors and owner-occupiers) which is not a market mover. Nor too the final estimate of Japan Q3 GDP (seen being revised to 0.4% from 0.3%).

Tonight its US payrolls Friday, where they’ll be as much or more interest in the earnings data and unemployment rate as the headline non-farm payrolls numbers (latter seen at 195k). Average earnings in October were depressed but by way of payback from hurricane-impacted September strength, and so is expected to print +0.3%m/m and 2.7% y/y up from 0.0% and 2.4% last time.

The unemployment rate is seen unchanged at 4.1% (the latter the lowest since December 2000).  It will take some dramatically weak data to dislodge the market’s supreme confidence in the Fed delivering its third rate rise of the year next Wednesday.

Our own Tapas Strickland has crunched his models overnight and suggests upside risks to payrolls and downside risks for unemployment versus the market consensus, with no bias on the earnings data.

Overnight

On global stock markets, the S&P 500 is +0.24%. Bond markets saw US 10-years +2.7bps to 2.365%  In commodities, Brent crude oil +$0.89 to $62.11, gold -$18 to $1,245, iron ore futures -4.2%, steaming coal +0.15 to $97.25.  AUD is at 0.7508 and the range since Friday 5pm Sydney time is 0.7505 to 0.7546.

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