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Asian equities were mixed on Tuesday after Wall Street ended yesterday in red and investors continued to digest news that the UK will begin its official departure from the EU in March 2017.

Better than expected manufacturing data from the U.S. was not welcomed news by investors as it strengthens the case for a Fed rate hike by year end. The ISM manufacturing index rose to 51.5 in September after dipping into negative territory in August, and beat expectations of 50.3.

Although the employment component of the index fell short of the 50 level, indicating jobs are still contracting in the manufacturing sector, new orders and output spiked higher suggesting that business conditions are slowly improving.

The U.S. dollar was the major beneficiary of the improved data and traded at two-week high of 95.95. The greenback was also supported by comments from Fed’s Loretta Mester who suggested the case for a hike in borrowing costs remain compelling at next meeting in November.  I still don’t buy a November rate hike, but the possibility of it happening relies on big surprises on Friday, especially if the economy added more than 200 thousand jobs in September and wage growth exceeded 0.3%.

Yields on U.S. 10-year treasury bonds rose for a third straight day to trade above 1.62. The higher the yields go from current levels the more investors believe that rates in the U.S. will rise which will continue supporting the greenback on the short-run.

RBA’s decision to hold rates steady today did not surprise the markets, and the statement didn’t show any material changes from September, only couple of rephrased sentences. The only major change was the governor of the RBA Philip Lowe who replaced Glenn Stevens. This explains why the Aussie was a little moved by the central bank’s decision.

Looking ahead into the European session, Deutsche Bank will likely steal the show with the return of German markets from Unity Day. The stock received a 14% boost last Friday on hopes that the bank will get a 60% discount on previous announced settlement amount of $14 billion from U.S. Justice Department, but with no updates so far on the case, expect the stock to remain on a roller coaster.  

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