OVERNIGHT DATA AND HEADLINES
• World stock markets slid from 20-month highs as uncertainty about a potential U.S.-China trade deal offset strong results from Apple and Facebook. Bloomberg reported on Friday that Chinese officials had doubts about whether it was possible to reach a comprehensive long-term trade deal with the U.S. and President Trump.
• U.S. consumer spending increased marginally in September while wages were unchanged, which could cast doubts on consumers' ability to continue driving the economy amid a deepening slump in business investment. Consumer spending rose 0.2% last month as households boosted purchases of automobiles and spent more on healthcare. Data for August was revised up to show consumer spending increasing 0.2% instead of gaining 0.1% as previously reported.
• The tame inflation environment was also underscored by a separate report from the Labor Department showing labor costs increased 0.7% in the third quarter after rising 0.6% in the second quarter. That raised the year-on-year rate of gain in the labor costs to 2.8% from 2.7% in the second quarter.
• Initial claims for state unemployment benefits increased 5,000 to a seasonally adjusted 218,000 for the week ended Oct. 26. Economists had forecast claims would rise to 215,000 in the latest week.
• Euro zone economic growth in the third quarter defied market expectations of a slowdown and was steady quarter-on-quarter, while headline inflation slowed because of a sharp fall in energy prices. GDP in the 19 countries sharing the euro grew 0.2% in the July-September period against the previous three months, the same as in the second quarter. Economists polled by Reuters had expected growth of only 0.1%. But GDP data for Germany is only due on Nov 14, so the estimate for the whole euro zone could be revised downwards if market expectations of negative third quarter growth in Germany are confirmed.
• Euro zone consumer prices rose 0.7% year-on-year in October, down from 0.8% year-on-year in September.
• U.S. stocks fell as worries that U.S. and China may not be able to strike a trade deal. Dow Jones fell 140 points (0.52%) to 27,046, S&P 500 fell 9 points (0.30%) to 3,037, Nasdaq fell 11 points (0.14%) to 8,292.
• The USD fell to a 10-day low as investors evaluated whether the Fed would continue to cut rates. DXY dropped as low as 97.22, the lowest since Oct. 21, before retracing to 97.36, down 0.29% on the day.
• JPY gained to a two-week high falling from 108.70 towards 108.00.
• EUR dropped from 1.1175 and settled around 1.1150, weighed by overnight risk aversion.
• GBP remained positive into overnight session, trading in and around 1.2940 / 1.2960 for the most part.
• AUD fell back towards 0.6880 from the recent 0.6930 highs however gained 10 or so points into NY close.
• NZD saw some heavy swings between 0.6430 highs and 0.6390 lows. Closed up over 0.6410.
• AUDEUR retraced back from 0.6205 highs towards 0.6180.
• AUDNZD continued to fall overnight from fresh 1.0820 highs down towards 1.0740.
• The U.S. Treasury yield curve was flatter after data showing a marginal rise in consumer spending in September cast doubts on consumers' ability to continue driving the economy.
• Two- and 10-year U.S. Treasury yields recorded their biggest daily drop since Aug. 5 on trade fears and in the wake of an interest rate cut by the U.S. central bank.
• The two-year fell by 10.6 basis points to 1.53%. The benchmark 10-year yield was 10.9 basis points lower at 1.69%. The spread between two- and 10-year yields stood at 16.2 basis points, down from a close of 17.2 basis points on Wednesday.
• Euro zone bond yields fell to two-week lows and were set for their sharpest daily fall in October.
• Gold prices jumped over 1% supported by an interest rate cut by the U.S. Federal Reserve. Spot gold was 1% higher at $1,509.97 an ounce, having earlier risen to a near one-week high of $1514.20.
• China's iron ore futures rose as much as 1.6%, recovering from a two-day loss, as sentiment was lifted by firm demand from downstream sectors. However, prices for spot cargoes of benchmark iron ore with 62% iron content for delivery to China fell to $85 a tonne on Wednesday. Rio Tinto said it expected a 5% increase in its iron ore shipment in 2020.
• Copper prices fell after weaker than expected manufacturing data from China heightened concerns about demand. LME 3 month copper fell 1.9% to $5,797 a tonne. LME aluminium fell 0.3% to $1,755 a tonne.
• Oil prices were nearly 2% lower after a leak on a key U.S. pipeline disrupted supply flows and on data showing weak factory activity in China. Brent futures were down 40 cents (0.7%) at $60.21 a barrel while U.S. West Texas Intermediate crude fell 94 cents (1.7%) to $54.12.
AUD entered into minor consolidation mode overnight as broad USD buying against most of the riskier currencies saw it fall back from 0.6930 towards 0.6880 lows.
AUD reacted well to the recent softer China-U.S. trade tones and recent broad USD selloff after Wednesday's 25bp Fed rate cut.
With Chairman Powell ostensibly taking future Fed hikes off the table, while he waits for a pickup in inflation, markets are left to view the future path for U.S. rates as either steady, with inflation, or potentially lower should growth and inflation slide. Signs of a slowdown in consumer spending and persistently low inflation could force the U.S. central bank to consider a rate cut early next year. With wage growth no longer accelerating, and employment growth cooling, growth in consumer spending is expected to moderate as we enter 2020.
AUD weak into the NY close but holds above cloud top / 3 month support at 0.6880. Above 200DMA 50% Fib of 2019 range at 0.6983 attracts, opens way for Apr high
For the moment, AUD still faces upside risks as the undertone remains positive for another rally.
Expecting strong resistance at 0.6920/0.6930 area. Support is now at 0.6865 and only a move below 0.6840 would indicate the current upward pressure has eased.
A great weekend to you!