Markets were in a better mood on Thursday, amid news that US Senate majority leader Chuck Schumer announced an agreement on extending the debt ceiling by $408 billion until early December. The S&P500 is up 1.3%, risk sensitive currencies have outperformed, and bond yields have risen. US 2yr treasury yields rose from 0.30% to 0.31%, while the 10yr yield rose from 1.52% to 1.57%.
Markets are also keeping their attention on China in regards to the Evergrande nightmare and now, there’s a new sign it could have “profound ramifications” for us all. A Chinese property behemoth is on the brink of total collapse, sparking fear of global financial repercussions.
More From World Markets, US Secretary of State Antony Blinken has given an alarming assessment of the Evergrande fiasco, warning the company’s downfall could affect “literally the entire world”. The Chinese property juggernaut – which is now the most indebted real estate firm on the planet, owing around $A408 billion – continues to teeter on the brink of collapse. In the earlier days of the Evergrande crisis, financial insiders feared it could be China’s “Lehman moment”, a reference to the 2008 GFC. There were serious concerns it could cause a credit crunch and have a contagion effect, spilling over into other companies and sectors.
This week, there were signs those fears could be realised, with another Chinese property company, Fantasia, also missing a payment on a $US206 million ($A282 million) bond that had matured the day before, triggering a default.
Commodities, Brent crude oil futures rose 1.0% to $82, copper rose 2.6%, and gold fell 0.4%
Overnight Currency Range
AUD/USD 0.7269 0.7324
EUR/USD 1.1547 1.1572
GBP/USD 1.3571 1.3638
USD/JPY 111.23 111.63
NZD/USD 0.6910 0.6943
USD/CAD 1.2540 1.2599
USD/CNH 6.4481 6.4566
AUD/JPY 80.94 81.67
AUD/NZD 1.052 1.0551
The AUD is outperforming the rest of the major currencies appreciating beyond 0.6% against a somewhat weaker US dollar. The Aussie has extended its rebound from Wednesday’s lows at 0.7225 to test the top of the last three week’s trading range, at 0.7315/20 area.
The US dollar falters with US Non-Farm Payrolls in focus this evening
The AUD has been favoured by a certain US dollar weakness and a moderate appetite for risk to regain lost ground. The greenback is pulling back against its main rivals with investors reluctant to place large USD bets ahead of the release of September’s US Non-Farm Payrolls report. With all eyes on the timing of the Federal Reserve’s next move, the market has assumed that a strong payrolls report on Friday will prompt the Bank to announce the kickstart of QE tapering in November.
Furthermore, the market mood has improved noticeably, which has reflected in higher equity markets. Wall Street is posting gains beyond 1% as investors’ concerns about the potential consequences of surging inflation levels have eased with oil prices pulled back from seven-year highs while fears of a government shutdown in the US seem to have taken the backseat for now.
AUD/USD traded firmly overnight and peaked at a high of 0.7324. Offering interest is expected between 0.7330/.7350 while demand has likely followed spot higher and should materialise as we approach 0.7230.
Event Risk Data Today
Australia: The housing market will be a particular focus of the October RBA Financial Stability Review.
China: The September Caixin China services PMI is expected to rise after the NBS services PMI reported a strong bounce(market f/c: 49.2).
US: The market is forecasting a print of 500k for September Non-Farm Payrolls and for the unemployment rate to fall to 5.1% in part because of lagging participation. Lingering supply issues should support average hourly earnings.