OVERNIGHT DATA AND HEADLINES
• The celebration of U.S. Columbus Day Holidays saw a relatively quiet North American overnight.
• The USD gained as initial optimism ebbed over a potential U.S.-China trade deal that President Donald Trump outlined last week, but a gauge of global equity markets was little changed as investors sought details.
• The optimism for a US/China deal was brittle when Chinese officials were reported highlighting substantive progress with the U.S., but later “China wants more talks before signing Trump’s ‘Phase One’ deal”.
• U.S. stocks paused after three sessions of gains as a lack of clarity over the first phase of a U.S.-China trade deal weighed on sentiment, while investors geared up for the third-quarter earnings season. The Dow Jones fell 29.97 points (0.11%) to 26,786, the S&P 500 lost 4.07 points (0.14%) to 2,966 and the Nasdaq dropped 8.39 points (0.1%) to 8,048.
• Industry data released on Monday showed auto sales in China fell for a 15th consecutive month in September, dampening hopes for a second-half turnaround in the world's largest auto market.
• A deal to smooth Britain's departure from the EU hung in the balance after diplomats indicated the bloc wanted more concessions from Prime Minister Boris Johnson and said a full agreement was unlikely this week. As the Brexit maelstrom spins, Johnson and EU leaders face a tumultuous week of reckoning that could decide whether the divorce is orderly, acrimonious or delayed yet again.
• The U.S. DXY gained 0.20% to 98.501, up from a three-week low of 98.197 reached on Friday.
• China's yuan came off early highs made on signs of progress in trade negotiations but still ended onshore trade at a one-month high. CNY closed at 7.0640 (strongest since Sep 16).
• EUR remained steady overnight, trading in a stable 1.1010 / 1.1040 range.
• GBP fell as much as 1.2% to start the week before recovering to end the session 0.8% lower at 1.2555 after E.U negotiators hinted that the rumoured Brexit plans wouldn’t be good enough.
• AUD retreated from 0.6800 highs to a low of 0.6748 before recovering slightly (0.6770) ahead of today’s RBA minutes.
• NZD also fell from 0.6330 to 0.6279 lows (recovered back towards 0.6295 late NY).
• AUDNZD made small gains, jumping up from 1.0730 lows towards 1.0760.
• AUDEUR plumbed fresh 0.6110 lows however bounced back to 0.6145 to remain relatively unchanged.
• U.S. interest rate markets closed for Columbus Day Holidays.
• Euro zone bond yields fell as caution surrounding both Brexit and U.S.-China trade talks encouraged investors back into fixed income after a hefty selloff on Friday that sent borrowing costs to 2-1/2-month highs.
• Ten-year gilt yields in Britain slid 6.4 basis points, dragging euro zone peers lower.
• Gold gained as trade talk optimism waned. Spot gold was up 0.3% at $1,493.33 per ounce (after touching nearly a two-week low of $1,473.90 in the previous session).
• Benchmark Dalian iron ore and coke futures slumped more than 2% following growing concerns about demand, amid China's renewed efforts to curb pollution by restricting steel mills operations. China's top steelmaking city of Tangshan issued new anti-pollution restrictions on mill operations, effective from Oct. 10 to Oct. 31. China's spot 62% iron ore benchmark, which settled at $92.50 a tonne over the weekend, is still up 15% this year despite a 27% slump from its July 3 peak of $126.50 as supply worries eased.
• Copper prices steadied as trade data from China reinforced concerns about demand for industrial metals and investors reacted cautiously to U.S.-China trade talks. LME copper ended up 0.4% at $5,818 a tonne.
• Oil prices fell nearly 3% as a lack of details about the first phase of a trade deal undercut optimism over a trade relations thaw that had helped lift crude markets at the end of last week. Brent crude dropped $1.64 (2.7%) to $58.87 a barrel. U.S. WTI crude lost $1.20 (2.2%) to $53.50 a barrel.
EVENT RISK TODAY
• No Australian Economic data today however the RBA minutes will be released. Market looking for further detail around October’s decision to cut interest rates.
• Japan - BoJ Kuroda speaks
• China – September CPI & PPI data releases. Expecting food inflation to be strong however elsewhere price pressures are largely absent.
• UK - BoE’s Carney provides a parliamentary testimony on Financial Stability report.
• Europe – October ZEW investor sentiment survey (expectations continue to deteriorate)
• US – Fed’s Bullard speaking in London
• US – Empire State survey for October
AUD threatened to extend losses overnight through 0.6755 support as it fell from Friday’s 0.6810 high down towards 0.6748 lows. The lack of optimism fuelled by Friday’s first phase deal to end U.S./China trade war permeated into most markets however AUD did manage to find bid interest back up towards this morning open at 0.6775.
Today we have the release of the RBA’s October meeting Minutes which will take on a higher-than-usual importance. Given markets are pricing a 50/50 chance of a follow-up cash rate cut in November and a sharpening in Governor Lowe’s message, heightened importance will certainly take centre stage today. Governor Lowe said it is likely that interest rates will remain low for an extended period “to reach full employment and achieve the inflation target” rather than previous references to “make progress in reducing unemployment and achieve more assured progress towards the inflation target” (our emphasis in italics).
Chinese inflation data is also released today and is likely to show elevated CPI inflation (food – surging pork prices) and deepening PPI deflation. CPI inflation remains worrisome, with core CPI inflation falling to 1.5% y/y in August, its weakest rate since 2016. Meanwhile, PPI deflation could worsen on a high base.
A bullish AUD close will be hard fought - big technical / option resistance and lack of US/China optimism hinders AUD bulls.
AUD remains range bound to start the week with demand still expected ahead of 0.6740. Selling interest likely to intensify should AUD push above 0.6810 towards 0.6827/0.6876.
The 61.8% Fibonacci retracement of the September / October fall at 0.6809 (Fridays high) - 21/55-dma 0.6767/ 0.6781.
A close above would embolden bulls. Daily cloud adds resistance around 0.6779-0.6880. Initial bids remain at 0.6740.