OVERNIGHT DATA AND HEADLINES
• Weak economic data in the U.S. and Europe weighed on global stocks sending investors into safe-haven assets. U.S. stocks and the USD dropped sharply on data showing manufacturing contracted to a 10-year low in September, adding to fears of a slowdown in the U.S. as a result of the trade war with China.
• US ISM manufacturing survey failed to rebound, instead falling to a 10-year low of 47.8 (prior 49.1, est. 50.0). The slide was evident in most areas with a notable side in employment to 46.3 (prior 47.4), and new export orders sliding to 41.0 (prior 43.3), with sluggish new orders of 47.3 (prior 47.2).
• The Markit final US manufacturing PMI which edged above the flash reading (from 51.0 to 51.1) after threatening 50.0 over recent months.
• US Aug. construction spending also missed, posting a minor +0.1%m/m, vs est. +0.5%m/m. Private residential spending grew, but non-residential and federal spending fell on the month.
• Eurozone final Markit PMI edged above the flash release (45.7 from 45.6) due to a slightly less awful German PMI (41.7, flash 41.4), but other key national PMIs were notably weak and the overall write-up remains one of deteriorating conditions.
• Eurozone Sep headline CPI dipped to +0.9%/y (est. unch. at +1.0%y/y), reflecting the generally soft national releases. Core CPI managed to meet the estimate of +1.0%y/y (prior +0.9%y/y).
• Dow and S&P 500 had their worst tumble in over a month after data showed U.S. factory activity shrank in September to its weakest in more than a decade. Dow Jones fell 343.93 points (1.28%) to 26,572.9, the S&P 500 lost 36.56 points (1.23%) to 2,940.18 and the Nasdaq dropped 90.65 points (1.13%) to 7,908.69.
• There are a few news wires circulating around the EU apparently not considering or even discussing a time limit on the Irish Backstop, creating a wave of selling in the GBP as we head towards the 11th hour and the Brexit deadline at the end of this month. UK Prime minister Boris Johnson had promised to renegotiate Britain's current withdrawal agreement and demanded the abolition of the Irish border backstop arrangement which is designed as an insurance mechanism to prevent a hard border on the island of Ireland regardless of the future EU/UK trade relationship.
• USD fell from its highest level in more than two years, undermined by weak U.S. data. The DXY was down 0.2% to 99.14, after earlier touching 99.58, its highest level since May 2017.
• EUR hung on to daily gains above 1.0925, jumping up from 1.0878 to a 1.0942 high.
• The defensive yen performed well, USD/JPY falling from 108.45 to 107.63.
• GBP rose sharply from three-week lows after US data and Irish border headlines. GBP gained more than a hundred pips printing a fresh high at 1.2337 but weakened to 1.2295.
• AUD weakened to a one-month low (0.6669) after the RBA cut rates to a record low however jumped just over 0.6700 in NY close
• NZD stumbled down towards 0.6201 (lowest level since 2015) after NZ business confidence deteriorated in the September quarter.
• AUDEUR fell from 0.6200 highs down towards 0.6116, capitalising on the overnight EUR strength.
• AUDNZD fell from 1.0800 to 1.0755 post-RBA, extending lower towards 1.0724 lows.
• U.S. Treasury yields hovered near session lows hit after the Institute for Supply Management (ISM) reported its U.S. manufacturing activity index fell in September to its lowest level in a decade.
• U.S. 2 year yields fell to a three-week low, last down 6.4 basis points to 1.56%. The 10-year yield was down 2.2 basis points to 1.65%, falling slower than the two-year yield and as a consequence.
• The spread between the two- and 10-year yields was 4.1 basis points.
• Forecasts that the Fed will cut rates at its October meeting rose to 62.5% on Tuesday from 39.6% the previous day.
• Australian 3yr government bond yields initially fell from 0.70% to 0.64% in response to the RBA rate cut, and then extended lower to 0.59% - a record low. The 10yr yield overall fell from 1.02% to 0.91%.
• Markets are pricing 9bp of easing at the 5 Nov RBA meeting, and a terminal rate of 0.40% (RBA cash rate currently at 1.0%).
• Gold jumped 1%, reversing course from earlier in the session, when it touched a near two-month low. Spot gold rose 0.8% to $1,483.11 per ounce, having touched its lowest since Aug. 6 at $1,458.50.
• Iron ore - China markets shut Oct. 1-7 for holidays.
• Copper prices hit one-month lows as worries about demand in China triggered a fresh bout of selling amid low liquidity. Benchmark LME copper ended down 0.7% at $5,686 a tonne.
• Oil futures sank on Tuesday as weak U.S. economic data dimmed crude's demand outlook and pressured prices, while reports of a third-quarter decline in output from the world's largest oil producers kept oil from falling further. Brent crude futures settled at $58.89 a barrel, a 36-cent loss, while U.S. WTI crude settled at $53.62 a barrel, down 45 cents.
EVENT RISK TODAY
• No Australian Economic data today
• US ADP private sector employment for Sep is expected to rise towards 140k (previous month 195k).
AUD thoughts :
AUD continued lower overnight, reaching 0.6669 lows but bouncing back up towards 0.6700 following the poor U.S. data overnight.
As expected yesterday, the RBA cut the cash rate to 0.75% and left the door open for further cuts if circumstances dictate. The market went into the RBA decision short, with OIS pricing for an October cut at 81%.
The RBA modestly tweaked the final sentence from September's statement to: "The Board will continue to monitor developments, including in the labour market, and is prepared to ease monetary policy further if needed to support sustainable growth in the economy, full employment and the achievement of the inflation target over time." Thus the doves proved correct.
No Australian data today – event risk tonight with the U.S. September ADP employment release.
Technical outlook :
AUD bears hits the breaks despite the dovish RBA – AUD breaks below August's low slide extends to 0.6669 (just above 07/08/19 lows @ 0.6675). AUD rallies & pierces 0.6705, little pullback seen, nearby late in day. The below chart shows the momentum studies, 5, 10 DMAs heading lower, which is a net negative setup, while weekly and monthly charts remain bearish with 5, 10 and 21 Mas tracking south.
Technicals remain bearish, RSIs fall & new low set, time below 0.6700 a concern though. Supports remain at 0.6675, First resistance @ 0.6755 followed by 0.6770 (23.6%).