OVERNIGHT DATA AND HEADLINES
• Weaker-than-expected U.S. economic data weighed on global financial markets overnight, leaving world equity benchmarks bouncing in choppy trading and sending investors into safe-haven assets on expectations of further Federal Reserve interest rate cuts.
• The Institute for Supply Management (ISM) said its index of non-manufacturing activity fell to 52.6 in September from 56.4 the previous month. The reading was below expectations of 55.0 from a Reuters poll of 67 economists and was the lowest since August 2016 (3 year low). The employment sub-component shrank, hinting a tepid NFP this Friday.
• European data missed the market’s expectations, Markit Services PMI indicated contraction in the sector, paints a gloomy picture for Q4.
• The survey of purchasing managers also showed the weakest job growth in half a decade in the largest slice of the U.S. economy.
• Wall Street climbed after data showing services-sector activity at a three-year low fuelled expectations the Fed would cut interest rates in an effort to thwart a wider economic downturn. Dow Jones rose 123.37 points, or 0.47%, to 26,201.99, S&P 500 gained 23.13 points, or 0.80%, to 2,910.74 and the Nasdaq added 87.02 points, or 1.12%, to 7,872.27.
• European Council President Donald Tusk said that he told PM Johnson that although they remained open on Brexit, they were still unconvinced, as Johnson’s offer would not win support from the 27 countries that need to sign off on any withdrawal deal.
• The US dollar index is down 0.3% on the day.
• EUR rose from 1.0940 to 1.1000.
• GBP extended gains to 1.2413 (highest level in a week) however fell dramatically back towards 1.2330.
• USD/JPY dipped to 106.48 – a one-month low – before retracing to 106.90.
• AUD extended yesterday’s rally from 0.6700 to 0.6753.
• NZD similarly rose from 0.6260 to 0.6316.
• AUDNZD extended a two-week old decline to 1.0676 before retracing to 1.0700.
• AUDEUR jumped higher, trading from 0.6115 towards 0.6150.
• U.S. bonds rallied for the sixth straight session, leaving the two-year Treasury yield at its lowest since September 2017, as signs of a slowdown in U.S. manufacturing and services fanned recession fears.
• The two-year Treasury yield fell 10.2 basis points to 1.382%, extending a 7.2 basis point fall on Wednesday.
• The benchmark 10-year Treasury yield was last down 6.8 basis points at 1.529%, with the 30-year bond yield last down 5.3 basis points at 2.034%.
• Expectations the Federal Reserve will cut rates in October by 25 basis points from its current target rate of 1.75%-2.0% jumped to 88.2% on Thursday from 39.6% on Monday.
• Australian 3yr government bond yields fell from 0.59% to 0.56%, the 10yr yield from 0.92% to 0.88%. Markets are pricing 12bp of easing at the 5 Nov RBA meeting, and a terminal rate of 0.34%.
• Gold jumped more than 1% to its highest in a week as weak U.S. data deepened concerns over economic growth. Spot gold was up 0.5% at $1,507.43 per ounce.
• China's financial markets shut Oct.1-7 for National Day.
• Copper prices slipped for a fourth day after the U.S. announced tariffs on some European goods, adding to fears that a global economic slowdown will deepen, weakening demand for metal. Benchmark LME copper did not trade in closing rings, but was bid down 0.3% at $5,661 a tonne.
• U.S. crude futures were slightly lower, drawing some support from the stock market after earlier touching nearly two-month lows on weak economic data. U.S. crude settled at $52.45 a barrel, down 19 cents. Brent crude settled up 2 cents at $57.71 a barrel.
EVENT RISK TODAY
• Australian Economic data today : August retail sales are expected to rise 0.5%. Soft underlying pace. Tax cuts to provide temporary boost.
• The biannual RBA Financial Stability Review is released. RBA Assistant Governor (Economic) Ellis speaks in Geelong, 1:20 pm.
• Tonight - US: Sep nonfarm payrolls are anticipated to increase by 140k broadly in line with the six month average of +150k. The unemployment rate is seen to hold at 3.7% while the annual pace of average hourly earnings continues to track at 3.2%yr.
• Fed Chair Powell delivers opening remarks at a Fed Listens event which also includes Brainard and Quarles. Other Fedspeak involves Vice Chair Clarida on policy (8:35 am Sydney time), Rosengren at the Boston Fed conference and Bostic at Tulane University.
AUD thoughts :
AUD extended gains overnight towards mid-0.6700s (0.6753 high) as USD remained under pressure (DXY slipping below 99 handle) through disappointing data from the United States.
Today we have Australian August retail sales data (out at 11.30am). Expecting a positive rebound in the numbers, market expecting +0.5% from -0.1% in July.
The main event risk tonight will be the September U.S. non-farm payrolls. Payrolls are anticipated to increase by 140k broadly in line with the six month average of +150k.
The unemployment rate is seen to hold at 3.7% while the annual pace of average hourly earnings continues to track at 3.2%yr.
All in all some tier 1 event risk today / tonight to keep AUD on the front foot.
Technical outlook :
AUD shorts in fear of a downside miss to U.S. jobs. AUD rallies on US data, sharp reversal in stocks helps buoy.
Technicals lean bullish, monthly RSI diverging, daily RSI rising, 10 day moving average pierced overnight (0.6747).
Next resistance level to watch : The 21 day & 55 day moving averages cross between 0.6798/0.6803 (average 0.6800).
Downbeat jobs data might rally AUD above 0.6780 & 0.6810 resistances. Looming US-Sino trade talks are a risk, might temper any upside progress.