OVERNIGHT DATA AND HEADLINES
• Global equities hit their lowest levels in a month as signs of a slowdown in U.S. economic growth and weak earnings in Europe fanned fears that the U.S.-China trade war could push the global economy into a recession.
• U.S. private employers hired fewer workers than expected in September and payroll gains in the prior month were revised lower, pointing to a slowdown in the labour market. The ADP National Employment Report showed private employers added 135,000 jobs in September. Economists polled had forecast private employment to rise by 140,000 jobs in September. Data for August was revised downward to show private payrolls increasing by 157,000 jobs instead of the previously reported 195,000 positions.
• Wall Street's main indexes suffered their sharpest one-day declines in nearly six weeks after employment and manufacturing data suggested that fallout from the U.S.-China trade war is further hurting the U.S. economy. Dow Jones fell 494.22 points (1.86%) to 26,078.82, S&P 500 fell 52.59 points (1.79%) to 2,887.66 and the Nasdaq dropped 123.44 points (1.56%) to 7,785.25.
• UK PM Boris Johnson finally presented a proposal on the Irish border, which failed to impress the market and politicians. The plan would see some customs checks in Ireland post-Brexit, as it means that Northern Ireland will stay in the EU single market for goods, but leave the customs union. Irish PM Varadkar crossed the wires ahead of the announcement, saying that it would not be a basis for a deal. UK PM Johnson repeated multiple times that the only alternative to his plan is a no-deal Brexit. Meanwhile, EU’s Juncker welcome UK government’s determination to advance on Brexit talks, while Brexit negotiator Barnier announced that there is progress, but a lot of work still needs to be done.
• The WTO ruled that the US can impose tariffs on up to $7.5bn of European exports annually, after Airbus was found to have received illegal government aid.
• The USD dropped amid worries about global growth following a sharp decline in U.S. manufacturing activity. DXY index fell 0.1% from 99.40 towards 99.00 lows.
• GBP peaked at 1.2323 from 1.2226 lows and stabilised back down to around 1.2300
• EUR rose from 1.0905 to 1.0964.
• JPY fell from 107.85 to 107.05.
• AUD bounced 0.13% towards 0.6710 after falling to more than 10-year lows at 0.6668
• NZD also staged a recovery, jumping from 0.6217 lows up towards 0.6270.
• AUDNZD as a result fell lower from 1.0750 towards 1.0690.
• AUDEUR saw another fall lower from 0.6140 highs down towards 0.6105.
• Two-year U.S. Treasury yields fell near two-year lows – 2 year Treasury yield was 7.2 basis points lower at 1.484%, extending a 6.6 basis point fall a day earlier.
• The benchmark U.S. 10-year note yield was last 4.7 basis points lower at 1.597%, with the 30-year bond yield down 1.8 basis points at 2.086%.
• Expectations the Fed will cut rates by 25 basis points from its current target rate of 1.75%-2.0% in October leapt to 75.4% overnight from 39.6% on Monday.
• Euro zone bond yields inched up - Germany's 10-year benchmark bond yield was 2.4 bps higher on Wednesday at -0.54% in line with a rise in most other euro zone bond yields.
• Australian 3yr government bond yields fell from 0.62% to 0.59%, the 10yr yield from 0.97% to 0.92%. Markets are pricing 11 basis points of easing at the 5 Nov RBA meeting, and a terminal rate of 0.34%.
• Gold prices rose more than 1% on the weaker than expected U.S. private employers release. Spot gold jumped 1.5% to $1,500.40 per ounce from a low of $1,458.50 (weakest in nearly two months).
• Iron ore - China markets shut Oct. 1-7 for holidays.
• Copper prices fell after data showed manufacturing output contracted in the U.S. and Europe. LME copper ended down 0.1% at $5,678 a tonne, nearing a more than two-year low of $5,518.
• Oil prices fell more than 2% after official data showed a rise in U.S. crude inventories, adding to worries about an oversupplied market. Brent crude futures settled down $1.20 (2%) at $57.69 a barrel. U.S. WTI crude futures fell 98 cents (1.8%) to settle $52.64 a barrel.
EVENT RISK TODAY
• Australian Economic data today : August trade balance will be released with the market expecting 6.0bn (surplus off peak – exports -3.5%, lower commodity prices)
• US: Sep ISM non-manufacturing is expected to remain solid at 55.2 in contrast to weakness seen in manufacturing.
• U.S. Aug factory orders are anticipated to decline 0.2% with the soft trend in durables persisting.
• Fed speak involves Evans in Madrid, Quarles at a banking conference in Brussels, Mester on a panel about inflation and Kaplan at a community event.
AUD thoughts :
AUD rebounded modestly overnight, retracing its drop that caused it to touch its lowest level in nearly a decade at 0.6668. As of writing, AUD is slightly higher over 0.6700.
The dovish tone that the RBA adopted in its monetary policy statement on Tuesday after announcing 25 basis points cut to its policy rate continues to weigh heavily on any further AUD progression higher.
Resurfacing recession fears in the U.S. amid dismal macroeconomic data releases has caused the US Treasury bond yields to fall sharply and hurt the USD. The US Dollar Index erased all of its weekly gains and is now testing the 99 handle, losing 0.15% on the day.
Today we have Australian August trade balance data to digest however the attention will focus on tonight’s U.S. September ISM non-manufacturing & August factory orders.
Technical outlook :
AUD 10.5 year low of 0.6668 set ahead of NY's open, bounce ensues. September ADP sees downside miss, August result revised down. AUD near flat late, daily doji forms, suggests market is indecisive.
Technicals are bearish - RSIs biased down & AUD holds below 0.6710/20 resistance. If topside continues look for 0.6747 and then 0.6770. US Sep ISM non-manufacturing out tonight, Sep non-farm payroll jobs report on Friday are key risks.