OVERNIGHT DATA AND HEADLINES
• World equity markets surged and crude oil prices jumped on Friday after a stronger-than-expected U.S. employment report, a surprise bounce in Chinese manufacturing and optimism over U.S.-China trade talks tamped down fears of slowing global growth.
• Nonfarm payrolls increased by 128,000 jobs last month, with manufacturing shedding 36,000 positions because of the strike - the most since October 2009. Striking workers who do not receive a pay check during the payrolls survey period are treated as unemployed. The strike by about 46,000 workers at GM plants in Michigan and Kentucky ended last Friday. Job growth in October was also held back by the release of 20,000 temporary workers hired by the government for the 2020 Census. Excluding the strike and Census temporary hires, economists estimate payrolls rose by about 190,000 last month.
• The ISM said its index of national factory activity rose to a reading of 48.3 last month from 47.8 in September, which was the lowest level since June 2009. A reading below 50 indicates contraction in manufacturing, which accounts for 11% of the economy. October marked the third straight month the index was below the 50 threshold. The index had declined for six straight months.
• Solid consumer spending blunted some of the hit on the economy from weak business investment to limit the slowdown in growth to a 1.9% annualized rate in the third quarter. The economy grew at a 2.0% pace in the April-June quarter. Average hourly earnings increased six cents, or 0.2% last month after being unchanged in September. That kept the annual increase in wages to 3.0% in October.
• The one-tenth of a percentage point rise in the unemployment rate to 3.6% last month reflected 325,000 people rushing into the labor force. The labor force participation rate increased to 63.3% last month, the highest since August 2013, from 63.2% in September.
• U.S. stocks rallied to close out the trading week. Dow Jones rose 300 points (1.11%) to 27,347, S&P 500 gained 29 points (0.97%) to 3,066 and the Nasdaq added 94 points (1.13%) to 8,386.
• China's factory activity unexpectedly expanded at the fastest pace in well over two years in October as new export orders rose and plants ramped up production, a private business survey showed on Friday. The Caixin/Markit Manufacturing Purchasing Managers' Index (PMI) for October rose to 51.7 from 51.4 in September, marking the third straight month of expansion. Expectations were a dip in growth to 51.0.
• Weekend news showed that PM Johnson would abandon the threat of a no-deal Brexit in his Conservative Party's election manifesto, but rather focus on getting Brexit done. Also, polls showed that Tories have a comfortable lead over Labour opposition, with most of those showing an advantage of over 10%.
• The USD initially gained after U.S. jobs growth slowed less than expected but was unable to hold onto gains. DXY index fell to 97.20, down 0.12% on the day, from 97.50.
• China's yuan retreated after its strongest gain in nine months in October, weighed down by profit taking and renewed trade uncertainty. CNY ended 7.0370.
• EUR increased its strength, trading back over 1.1150 and a handful of pips away from its 1.1179 October high.
• GBP lost further momentum, unable to surpass the 1.3000 level and falling back towards 1.2925.
• USDJPY gave up some of the recent gains towards 108 support, jumping back up towards 108.30.
• AUD held hefty weekly gains an upbeat Chinese activity report. AUD rose from 0.6890 towards 0.6920.
• NZD continued solid improvement, hitting a fresh 0.6455 high overnight. Traded back towards 0.6420.
• AUDNZD fell lower after reaching lofty 1.0825 highs last week – AUDNZD saw 1.0715 lows but ended at 1.0740.
• AUDEUR remained relatively firm, trading up from 0.6170 towards 0.6195.
• U.S. government bond yields were higher after evidence of stronger-than-expected domestic jobs growth in October outweighed the continued contraction of the manufacturing sector.
• U.S. benchmark 10-year yield was last up 4.2 basis points to 1.733%.
• The U.S. two-year yield was up 3.6 basis points to 1.562%.
• Euro zone government bond yields pushed higher as the market took positive signs from U.S. data releases and Christine Lagarde began her presidency of the European Central Bank.
• Gold prices eased as better-than-expected U.S. jobs numbers and strong factory data from China bolstered sentiment for riskier assets. Spot gold dipped 0.3% to $1,508.61 per ounce.
• Benchmark Dalian iron ore and coke futures edged higher on Friday after recouping early losses. Benchmark spot 62% iron ore for delivery to China was at $85 a tonne.
• Copper clawed higher after upbeat Chinese manufacturing and U.S. jobs data. Three-month LME copper rose 0.9% in final open-outcry trading to $5,850 a tonne.
• Oil prices rose nearly 4% on signs of progress in U.S.-China trade talks and stronger-than-expected economic data in both countries, including U.S. employment and Chinese manufacturing activity numbers. Brent crude ended the session up $2.07 (3.5%) at $61.69 a barrel. WTI crude settled $2.02 (3.7%) higher at $56.20 a barrel.
• Australian Economic data – September retail sales (market forecast 0.4%)
• Australian Q3 real retail sales (market 0.3%)
• Australian Oct MI inflation gauge – Oct ANZ job ads
• Europe – Oct Markit manufacturer PMI
• U.S. – September factory orders (market -0.5%)
AUD threatens key hurdles ahead of the RBA policy meeting tomorrow - holding above old resistance turned into support in the 0.6880/90 zone and price action suggests key hurdles will break.
Risks from the RBA have to pass first – tomorrow’s RBA policy decision expecting no change and to remain @ 0.75%. Expectations are for a 25bp cut in February.
The probability for a Fed December cut has been pared back but cuts in 2020 and beyond are still priced in by short term rates markets. Potential for de-escalation of U.S.-Sino trade tensions failed to boost the USD but did rally trade-sensitive assets such as equities, EM currencies and China's yuan - all of which the AUD is highly correlated to.
If risk sentiment remains upbeat and the RBA sounds less dovish than expected, AUD bulls are likely to target July and April monthly highs.
AUD longs shake-off early concerns, now threaten key hurdles. 0.6890 neared but option influence & fading USD bid stall bears. AUD lifts above 0.6920, slips back near 0.6910 late in the day.
Daily cloud support, rising RSIs reaching over bought levels, October engulfing candle have technical bullish.
The 200 day moving average is the likely drawcard for any further gains – now coming in at 0.6953. First resistance @ 0.6924 (61.8% resistance).