US data lifts holiday- thinned Asia

US markets quickly put the first Presidential debate behind them, being long on hot air, but short of substance. US GDP for Q2 shrunk by around 31.0% as expected but being so far backwards looking was also ignored by markets, with Q3 GDP expected to rebound strongly. ADP Employment for September though, performed strongly, adding 749,000 jobs, well above expectations. Combined with ongoing talks between Steve Mnuchin and Nancy Pelosi over a long-awaited stage two US fiscal stimulus, that lifted equity markets to a strong finish, although currencies, precious metals and energy contented themselves to mark time. 

The US releases another slew of data tonight featuring personal consumption expenditure, initial and continuing jobless claims, as well as the ISM Manufacturing PMI. Jobless claims are expected to remain steady around 850,000 and 12.6 million respectively, with the ISM Manufacturing PMI holding steady around 56.0, comfortably in expansionary territory. The data will suggest that the US recovery remains on track, although gains may be stalling, and we note as Federal money runs out, US Airlines are preparing mass layoffs. With Mnuchin and Pelosi still talking though about a possible $2.0 trillion follow-on fiscal package, markets should give the US the benefit of the doubt until tomorrow's Non-Farm Payrolls.

Asian trading volumes will be subdued today and tomorrow as Northern Asia heavyweights head mid-autumn and National holidays. Mainland China, Hong Kong, Macau, as well as South Korea and Taiwan are all on holiday for the rest of the week. Mainland China is on holiday until next Friday. That is likely to leave the remainder of Asia content to play follow-the-leader, in this case, New York, especially with heavyweight US data due out tomorrow night.

Still, there has been quite a lot of data released in Asia this morning, mostly positive. Australian Manufacturing PMI for September rose again to 55.4. Japans Tankan Large Manufacturers Index improved slightly to -27, poor, but less poor than last month. South Korea's Balance of Trade rose impressively to $8.90 billion, led by a substantial rise in exports. Elsewhere, manufacturing PMI's from Japan, Malaysia, the Philippines, Thailand and Vietnam all showed improvements, with Vietnam and the Philippines being the standouts. Only Indonesian PMI fell as it deals with Covid-19, notably in key population and industrial centres. The overall picture is one of a consistent, if very uneven recovery by the region, with North Asia ex-Japan leading the charge. 

With so many Asian centres on holiday today, trading is likely to look like a technical Friday across the region. Markets will be vulnerable to headline surprises. In this case, though, the highest risk, I believe, is a positive one. If an announcement that a US fiscal stimulus deal has been reached. If that should occur, and we all deserve some good news for a change, it should be strongly positive for equity markets, and pro-cyclical major and regional currencies.

Equities follow Wall Street higher

Increasing hopes of a follow-on fiscal stimulus package lifted Wall Street overnight, sending the S&P 500 1.04% higher, the Nasdaq 0.95% higher, and the Dow Jones 1.43% higher. The main risks now that equities appear to have weathered the downward correction storm will be no agreement and or a weak Non-Farm Payrolls number tomorrow. 

With much of Northern Asia closed for holidays, the remaining centres have contented themselves to hitch their wagons to Wall Street's overnight rally. The Nikkei 225 is closed for the remainder of the Tokyo session due to systematic failure. Singapore 1.40% higher. Malaysia has fallen 0.45% after the US blocked palm oil imports from a significant local exporter on slave labour claims. That is also weighing on the Jakarta index, which has slipped 0.20%. Australian markets have seen broad-based buying across the resource and banking sectors, lifting the ASX 200 by 1.60%, and the All Ordinaries by 1.30%.

We expect the remainder of the session to be steady after the initial moves higher with Asia happy to adopt a wait-and-see approach ahead of US data and event risk.

The US Dollar edges lower

The US index edged 0.10% lower overnight with EUR/USD edging lower, but GBP/USD outperforming on Eurozone trade hopes, and USD/JPY giving back some recent gains. With plenty of heavyweight US data to come, as well as the possibility of a new fiscal stimulus package from Washington DC, the best of the US Dollar rally may now be behind us.

The narrow ranges seen overnight have left the G-10 space in range-trading mode versus the greenback. With China away, Asian currency trading has been muted, and we expect that tone to prevail for the remainder of the session.

Stimulus hopes lift oil prices

Oil unwound most of its previous day's losses as US stimulus hopes saw fast-money traders buy oil. Brent crude leapt 3.25% to $42.15 a barrel, with WTI jumping 2.05% to %39.95 a barrel. The overnight price action has not moved the needle on oil prices; rather, it has left both contracts in range-trading mode.

A US fiscal stimulus deal should see oil prices jump again, but with quite a bit of expectation now built into oil prices, traders should exercise caution as we have been led to water before by Capitol Hill. With much of Asia on holiday today, both volumes and trading interest will be muted.

Brent crude has resistance at $42.60 a barrel, with support at $40.50 a barrel. WTI has resistance at $41.50 a barrel, with support at $38.50 a barrel. 

Gold trades sideways overnight

Speculative interest appears to have ebbed in gold overnight, with the yellow metal content to consolidate at the upper end of its recent trading range. Like other asset classes, gold is awaiting US fiscal news and a slew of heavyweight US data releases over the next 24 hours. 

Gold edged through $1900.00 an ounce overnight but gave up those gains to finish the session down 0.60% at %1885.50 an ounce. A weaker US Dollar this morning has lifted prices slightly, with gold climbing to $1891.00 an ounce. For now, gold appears to lack the will or momentum to make a substantial test of the upside as it adopts a wait-and-see approach.

Gold has resistance at $1903.00 and $1920.00 an ounce, with support at $1875.00 an ounce. Those levels should contain price movements until the Non-Farm Payroll data tomorrow evening.