OVERNIGHT DATA AND HEADLINES
• US Nonfarm Payroll report came in mixed, consistent with economic expansion. Wall Street rallied with the news, on mounting hopes the US Federal Reserve will cut rates one more time before year-end.
• U.S. Nonfarm payrolls increased by 136,000 jobs last month. August data was revised to show 168,000 jobs created instead of the previously reported 130,000. Economists polled by Reuters had forecast payrolls would increase by 145,000 jobs in September. The unemployment rate dropped to a near 50-year low of 3.5%. Given that market expectations have shifted after the ADP (private payrolls) and ISM (manufacturing and services), people were bracing for something worse than this.
• Dow Jones Industrial Average rose 371.63 points (1.42%) to 26,572.67, S&P 500 gained 41.28 points (1.42%) to 2,951.91 and the Nasdaq added 110.21 points (1.4%) to 7,982.47.
• Talks between Beijing and Washington will resume this week as the world's two largest economies work towards a truce in their protracted trade spat, although hopes for a definitive agreement are low.
• During the weekend, a second whistle-blower in the case of US President Trump’s dealing with Ukraine has come forward. He’s said to have first-hand knowledge of the allegation listed by the previous one. Could trigger some risk-off at the weekly opening.
• Brexit weighs on GBP. The EU Parliament President rejected UK PM Boris Johnson’s Brexit plan, saying that it’s not remotely acceptable. Ireland has also rejected the agreement, as it implies borders within the island.
• The USD inched lower, giving up gains fuelled by a generally solid U.S. jobs report that slightly underperformed expectations. The DXY index was down slightly at 98.83.
• EUR was capped by selling interest ahead of 1.1000, trading in and around 1.0970. The recovery from multi-year lows remains corrective.
• GBP ended the week virtually unchanged as it remained above 1.2275 support, trapped between 1.2250 and 1.2350.
• AUD was unable to make further traction higher, selling off around 0.6775 towards 0.6750 lows
• In similar fashion NZD was bro8ught lower from 0.6335 highs down to 0.6300.
• AUDNZD jumped higher over the session, up from 1.0675 towards 1.0720 and back down to 1.0705.
• AUDEUR’S latest 3 day gains towards 0.6170 fell back lower to 0.6140
• The two-year Treasury yield's dramatic multi-day fall was capped on Friday after U.S. job growth increased moderately in September, leaving the yield up 1.4 basis points on the day, though still down 22.5 basis points for the week.
• The benchmark 10-year yield was down 1.7 basis points to 1.519%, pushing down the spread between two- and 10-year yields to 11.5 basis points
• Markets see an 85% chance the Fed will cut rates by 25 basis points to 1.75%-2.00% in October, up from 39.6% on Monday.
• Euro zone government bond yields were set to fall for a third week, steadying on the day as data showed U.S. jobs growth increased modestly in September. Most 10-year bond yields in the currency bloc were largely steady on the day. Germany's 10-year bond yield was flat at -0.59%, above session lows but still on track for a third straight week of declines.
• Gold steadied, paring earlier gains and on track for a weekly gain. Spot gold was up 0.1% at $1,506.76 per ounce.
• Copper prices drifted lower on concerns about weak global growth. Benchmark LME three-month copper slipped 0.3% to $5,643 a tonne.
• Oil prices rose about 1% as an increase in U.S. jobs eased some financial market concerns of a slowing global economy. Brent crude futures gained 66 cents (1.14%) to settle at $58.37 a barrel. West Texas Intermediate (WTI) crude futures rose 36 cents, or 0.7%, to settle at $52.81 a barrel.
EVENT RISK TODAY
• Australian Economic data today : September AiG PCI. Also labour day holidays in NSW, Qld & SA.
• Germany : August factory orders (PMI suggests more weakness ahead).
• U.S. : August consumer credit & Fed speak from George & Kashkari.
AUD thoughts :
The stronger than expected U.S. payrolls headline over the Friday night kept AUD away from revisiting the 0.6800 resistance levels, managing a 0.6775 top before retracing back lower towards 0.6750 after the announcement. The drop in the U.S. unemployment rate in September pushed financial markets to pare bets the Fed would cut rates at both of its two upcoming meetings. Things are not that great for the U.S. economy. The job market is clearly slowing down. There was nothing in the jobs report that suggests that's not the right view. The jobs report's positive impact, however, was short-lived as investors grappled with U.S. political tensions.
The week ahead brings the attention back to offshore markets :
US Sep FOMC Minutes (Wednesday) will provide greater insight into the discussions surrounding the decision to cut the Fed Funds rate by a further 25 bps on 18-September.
The dissents and dot plot projections suggest some division on the committee at this time, which could be further elaborated on in the minutes. They may also provide hints on further measures the FOMC may use to address imbalances in short-term funding markets that have led the effective fed funds rate to exceed its target rate in recent months.
US Sep CPI (Thursday) will show emerging US inflation pressure. Core figures showed increased momentum over the past three months following softness earlier in the year. This is also evident in median CPI, which stands at an expansion high of 2.9% YoY.
The ECB Sep Policy Meeting Account will be watched to see how great was the resistance to restarting the Asset Purchase Programme and if any Governing Council member foresaw the risk of the unorthodox market reaction to deposit rate tiering. In the post-meeting press conference, President Draghi already admitted that GC members were in agreement with the various aspects of the easing package, expect one.
UK Aug GDP takes on increasing importance after the UK economy contracted -0.2% Q/Q in Q3. According to a popular definition, another quarter of contraction means a UK recession. Markit PMI surveys suggest the UK economy just eked out growth in August. A marginal rise in UK Services PMI just offset a sharp drop in construction and another fall in manufacturing production in August. Given median expectations of flat growth, the measure may surprise to the upside.
Australian Economic releases are on the lighter side this week with job ads, business survey, consumer sentiment and August housing finance.
For the AUD, the mixed U.S. jobs data keeps the short selling interest on the run as many had expected a dismal jobs report after the disappointing ISM & ADP reports last week.
AUD remains stuck in the recent 0.6670 / 0.6770 ranges for the meantime, dipping back to the 10 day moving average @ 0.6748.
Technical outlook : RSIs rise, 10-DMA supports, monthly bull hammer forming. Resistance levels remain clustered around 0.6795 / 0.6800. A break higher sets up a move towards 0.6830 & 0.6880.