News and views
The US ISM services survey for September posted a positive surprise for markets, helping equities rebound from four days of selling. A major investment bank’s buy recommendation on banking stocks added to the sentiment, and as we write the S&P500 is up 1.2% after a strong open, the banks index up 3.8%. Commodities oil (+1.2%) and copper (+1.8%) moved in line with risk sentiment. US 10yr notes were unchanged since the Wellington close; after some minor buying early NY on speculation of strong auction demand this week, notwithstanding China’s holiday, they were then sold on the broader move in risk from 3.18% to 3.22%.
The US dollar is slightly lower than at Wellington’s close, having risen to 76.99 and fallen back to 76.63, still within the recent range. EUR rallied to 1.4670 after the US data, but couldn’t break that resistance level. GBP underperformed, congesting around 1.5940 all evening. The yen benefited from the negative dollar sentiment, rallying from 90 to 89.40.
AUD took a while to respond to the move in equities and commodities, range bound between 0.8720 and 0.8760, but broke higher after noon NY to 0.8789, where it currently resides.
NZD similarly lagged the move in risk, remaining between 0.7180 and 0.7230 until the recent break higher to 0.7304, close to the 2009 high of 0.7312. AUD/ NZD reached 1.2168 early London, but it was one-way traffic downwards after that, and it currently probes 1.2030. Speculation around today’s RBA outcome has added volatility here.
US ISM non-manufacturing rises from 48.9 to 50.9 in Sep. Accelerating business activity and orders, and a slower pace of inventory unwind (and a slightly slower pace of job shedding) were the main factors driving the first above 50 reading for this index since August last year.
Euroland retail sales fall 0.2% in August, their fourth consecutive month without a gain, though not as weak as soft French and German data had suggested might be the case.
Euroland Sentix investor sentiment rises from –14.6 to –12.6 in Oct, consistent with the recent upswing in European equities. Also, the Sep PMI services was revised up from 50.6 to 50.9, its highest since April 2008.
UK PMI services up from 54.1 to 55.3 in Sep. That is the highest since September 2007, and contrasts with softer readings for both the construction and factory PMIs in September.
Outlook today
AUD/USD and NZD/USD outlook today: Both currencies should be well supported today, given the global risk backdrop from last night, and local data. The AU trade balance is expected to be AUD supportive, but the wild card will be the RBA’s rate announcement, half the market thinking they’ll hike 25bp. NZ’s important Q3 business opinion survey should be bullish. Buy on dips to 0.8750 and 0.7250.0.8750 and 0.7250.
