OVERNIGHT DATA AND HEADLINES
• The USD posted its worst week in almost four months on Friday, pummelled by GBP and EUR rallies driven by a deal on Britain's departure from the European Union, while China's weakest growth in nearly three decades weighed on equities.
• Wall Street fell as negative headlines about Johnson & Johnson and Boeing, along with bleak economic data from China, soured investor risk appetite and offset generally positive corporate earnings. All three major U.S. stock averages ended the session in the red. Dow Jones fell 255.68 points (0.95%) to 26,770, the S&P 500 lost 11.75 points (0.39%) to 2,986 and the Nasdaq dropped 67.31 points (0.83%) to 8,089.
• China's GDP growth grinds to near 30-year low as tariffs hit production - China's third-quarter economic growth slowed more than expected and to its weakest pace in almost three decades as the bruising U.S. trade war hit factory production, boosting the case for Beijing to roll out fresh support. Gross domestic product (GDP) rose just 6.0% year-on-year, marking a further loss of momentum from the second quarter's 6.2% growth. Downbeat Chinese data in recent months has highlighted weaker demand at home and abroad.
• Federal Reserve Vice Chairman Richard Clarida reiterated his stance that the central bank will "act as appropriate" to extend the recovery and shield the U.S. economy from risks posed by geopolitical tensions and slowing global growth. "Looking ahead, monetary policy is not on a preset course, and the committee will proceed on a meeting-by-meeting basis to assess the economic outlook as well as the risks to the outlook," Clarida said in prepared remarks delivered at an event organized by the CFA Institute. "It will act as appropriate to sustain growth, a strong labor market, and a return of inflation to our symmetric 2 percent objective."
• The International Monetary Fund has forecast global output will increase by just 3.0% this year, the slowest expansion since the recession of 2008/09 ("World economic outlook", IMF, Oct. 15). The slowdown has been synchronised globally and centred on manufacturing, investment and trade as rising tariffs and increased policy uncertainty have hit business confidence and consumer spending on motor vehicles.
• The USD fell sharply, the DXY down 0.31% from 97.60 towards 97.20 (for the week, the index was down 1%, its worst weekly performance in 17 weeks).
• EUR jumped up 0.33% from 1.1120 towards 1.1170, a near two-month high.
• GBP was 0.45% higher at 1.2946 (from 1.2820 lows), even as doubts remained about whether the proposed Brexit deal will get through the British parliament in Saturday's vote.
• CNY held steady after data showed China's economy grew at the slowest pace in more than 27 years in the third quarter. CNY opened at 7.0710 per dollar and was changing hands at 7.0800.
• AUD touched a four-week high as the market scaled back bets on a near-term cut in local interest rates, AUD saw a 0.6857 high from 0.6820 levels on Friday.
• NZD followed AUD gains, jumping up from 0.6360 towards 0.6390 highs.
• AUDNZD was extremely whippy in the overnight session, trading back and forth between 1.0720 and 1.0750 closing towards the lows.
• AUDEUR held remarkably steady, trading within a 0.6130 / 0.6150 range for the most part.
• U.S. Treasury yields fell as investors awaited a UK vote on Britain's deal to leave the European Union over the weekend, and after a senior Federal Reserve official said the U.S. central bank will act as appropriate to sustain economic expansion.
• Interest rate futures are pricing in an 90% chance of a Fed rate cut at the Oct. 30 meeting.
• Benchmark 10-year notes gained 3/32 in price to yield 1.745%, down from 1.755% on Thursday. The yield rose as high as 1.799% after the Brexit deal was announced on Thursday.
• Two-year note gained +02/32 to yield 1.57%, 30-year bonds were down to 2.24%.
• Euro zone bond yields rose, a day before the British parliament is due to vote on whether to approve an agreement on the United Kingdom's departure from the European Union.
• Chance of RBA Nov rate cut pared back to just 14% compared to 34% a week ago. 10-year bond contract slips 5 ticks to 98.85, well off 99.15 recent top.
• Gold steadied, helped by a weaker USD, with the possibility of a no-deal Brexit, uncertainties over U.S-China trade and fears of a global slowdown keeping bullion on track for a small weekly gain. Spot gold was little changed at $1,490.70 an ounce, holding in a relatively tight range for most of the session.
• Benchmark Dalian iron ore prices posted their deepest weekly fall in more than two months despite a slight rebound late hurt by intensified restrictions on Chinese steel production aimed at curbing air pollution. A faltering global economy exacerbated concerns about demand for steel products and raw materials, while higher quarterly output reported this week by some of the world's biggest iron ore miners added fuel to the sell-off in futures markets. Benchmark spot 62% iron ore cargoes fell to a seven-week low of $86.50 a tonne on Thursday, from Wednesday's $89.50.
• Copper prices rose after positive Chinese data on property and infrastructure growth, while zinc and lead hit multi-month highs as investors worried about shortages. LME copper gained 1.2% to $5,806 a tonne. LME lead gave up 0.4% to $2,181 a tonne, reversing direction after hitting $2,214.50, the highest since July last year. LME aluminium rose 0.6% to finish at $1,738 a tonne.
• Oil prices edged lower, as concerns about China's economy outweighed bullish signals from its refining sector, but losses were limited on hopes for progress toward a U.S.-China trade agreement. Benchmark Brent crude oil futures fell 49 cents to settle at $59.42 a barrel. U.S. West Texas Intermediate (WTI) crude futures lost 15 cents to settle at $53.78 a barrel.
• No Australian Economic data today.
• U.K. – October Rightmove house prices.
AUD continued to scale fresh highs over the Friday night session, visiting 0.6857 highs and falling back into the NY close.
A relatively quiet day ahead on the data front although Brexit headlines will continue to dominate as the market digests the weekend’s vote and the path forward for the UK continues to unfold.
After this morning’s nominal sell-off we expect the topside momentum to continue as the market prices out the prospect of a November rate cut following Governor Lowe’s positive comments last week.
The RBA's Lowe eroded market expectations for additional rate cuts by saying it was extraordinarily unlikely negative rates would be needed and that low rates along may not stimulate investment.
As a result Australian bond yields rallied sharply and Australian-U.S. spreads tightened, which contributed to AUD gains.
Little pull-back from the day's high has been seen. That confidence gets an added boost on signs of de-escalating U.S.-Sino trade tensions.
Progress on trade could give a boost to global growth, which would benefit emerging market and high-beta currencies such as the AUD.
AUD pauses at 100-DMA but primed for more gains. AUD bolstered by signs of de-escalation in US-Sino trade feud [nL3N27401O]
AUD longs show little fear as they buoy above the 76.4% Fibonacci (0.6842) of the 0.6895-0.6670.
A break of those resistances will likely induce covering of short AUD positions. A particularly bullish signal would be an AUD close for the month of October above 0.6895.
Demand likely lies ahead of 0.6815 while offering interest is thinner however is expected on any move above 0.69c ( September’s rally was halted in the 0.6895 area ).
Resistance 0.6858(100-DMA) & 0.6876, 50% of July-Oct drop; support 0.6810-20