First light news: Brent lower, tech struggling, and RBA set to hike

Oil plummets on diplomacy reports

Following last week’s escalating fears underpinning oil benchmarks, WTI and Brent crude were on the ropes on Monday, down more than 7% at the close. This was ultimately triggered by an Axios report that President Trump wants more time for diplomacy with Iran.

The punch lower has Brent within striking distance of its 50-day SMA at US$102.49/barrel, which has not been tested since the unit broke north of the dynamic value in early August. A break lower here would unearth familiar daily support at US$98.72.

US stocks fail to catch a bid

US indices caught a relatively healthy bid in the early hours of trading, though failed to follow through and eventually gave up their gains. The Nasdaq 100 has now recorded a third correction of the year and is on the verge of absorbing bids at daily support from 28,234, which would open the door to the 200-day SMA at 27,940.

The outlier was the Dow, which remained in positive territory as investors rotated out of tech.

Although I am still bullish on equities, a number of headwinds remain, and I am still on the fence about whether this is a dip-buying signal.

Midterms unlikely to offer the markets much

Before I get to the day's data prints, the US Midterms will, of course, dominate the news flow. Personally, I do not expect much market reaction to the elections, with Democrats widely favoured to win the House and the Senate. Polling stations begin closing their doors at 11 pm GMT tonight and will roll over into the early hours of Wednesday morning. So, if there are any surprises, we can expect them in the Asia-Pac session.

RBA gearing up for a fifth rate hike

We have a busy data docket ahead, kicking off with the RBA decision at 3:30 am. The RBA is widely expected to raise its cash rate by 25 bps from 4.60% to 4.85% – marking its fifth rate hike this year. This could be particularly market-moving and deserves attention.

As of writing, 21 bps of tightening is implied for this meeting (87% chance of an increase), and of the 32 analysts polled by Reuters, 30 expect a hike and 2 a no change. Consequently, a rate hike at this meeting will do little to move markets. It goes without saying that if the RBA follows in the footsteps of the RBNZ and holds steady, we can expect a swift downside move in AUD (upside in ASX 200).

Assuming a hike, which is the base case, my focus will then quickly shift to the rate statement for the votes. If it is unanimous, I would view that as a hawkish signal. A 7-2 vote or 6-3 would, however, lean dovish. My attention will then move to the updated SoMP, with cash rate assumptions front and centre, and how they compare to current market pricing (markets are expecting the RBA to hold following today’s hike). The inflation forecasts will also be important. Following this, Governor Michele Bullock’s presser will air about an hour later, and her language will be closely watched.

Swiss CPI inflation and JOLTS unlikely to move the needle

The Swiss CPI inflation report lands at 7:30 am GMT. This is not an event I will be watching that closely, simply due to the jump in headline being largely base effects – something policymakers at the SNB have already noted as the driver. Couple that with markets assigning an 83% chance of a hold for December’s meeting (hikes are priced further out on the curve), and I think it would take a large upside surprise to change that; I would want to see beyond 1.4% for YY headline.

We then have the September US JOLTS report hitting the wires at 3:00 pm. The market response to this indicator is generally weak and lagging; therefore, much like the Swiss CPI data, I am not holding my breath here. While December’s Fed meeting is not fully priced in (65% probability), I do not see this report offering much to move the needle.

New Zealand jobs data worth watching given RBNZ pricing

Later, we have the Q3 26 New Zealand employment report at 9:45 pm. I believe this data release could be more market-moving than Swiss CPI and US JOLTS, given the recent RBNZ hold decision, hawkish rhetoric from Governor Anna Breman, and markets pricing in a 75% chance of a hike in December. The skew is NZD-positive on a strong print and NZD-negative on a weak one. However, other than a quick scalp, this could be a tricky event to trade because it comes out just before the rollover, which can widen spreads considerably.

Have a great day ahead!