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Global Market Update
The View from Australia

Craig Killaby October 15, 2020



> AU October MI Inflation Expectations : 3.4% v. 3.1% prev.

> AU September Employment Change & Unemployment Rate : -29.5K & 6.9% v. -40.0K & 7.0% exp.

> CN September CPI & PPI : 1.7% & -2.1% v. 1.9% & -1.9% exp.     

> US October Empire Manufacturing Index : 10.5 v. 14.0 exp.      

> US Unemployment Claims : 898K v. 825K exp.      

> US Continuing Unemployment Claims : 10.018mio v. 10.5mio exp.      


Overnight Headlines (BBG)


> The divergence between the US President and Senate leaders continued, signalling that the President may be on his way out as US stimulus is unlikely ahead of the election

> Talks between the UK/EU remain ongoing, however the sides look to be at a stalemate while COVID-19 cases surge across the region


What you need to know


It was a busy day yesterday in APAC, with the RBA Gov. kicking it all off in the morning while the September AU employment report followed shortly thereafter. The speech from Gov. Lowe set the table for further easing of the cash rate at their next meeting, mentioning that the Reserve Bank is looking at whether or not the easing would assist in job creation and supporting business in the recovery. There was a fair bit in the speech, however the main takeaway was that it is really 50/50 as to whether they move next month. There was some movement along the AUGB yield curve, with the longer end of the curve seeing the moves with the 10y yield dropping as much at 9.5bp following the comments from Lowe. The AU employment report was a touch better than market estimates, however it highlighted the severe impact that the continued lockdowns in Victoria is having on the labour market, with the losses in the state dragging down the gains in other regions. Market reaction was a slow drift lower for the Aussie, likely impacted by the soft inflation numbers coming out of China hours later.


There seems to be a real lack of risk appetite as we inch closer to the Brexit deadline and the US election, all while the next round of stimulus in the US looks to be a ways off. GBPUSD performed poorly following the ramp up of tensions between the UK/EU ahead of the deadline, with the EU stating that the UK will need to make concessions to get a deal done. The GBP sits a touch below the 1.2900 handle and at risk of a further drop. The Dollar surged across the board as demand for havens took over, up the most in nearly three weeks and 0.5% higher in DXY terms. The AUD broke through the 100DMA, touching an intraday low of 0.7056 and looking soft on the open today. The crosses are all looking worse for wear as the lack of real progress on any of the risk events saw the AUD underperform. US equity markets seem to be coming to the harsh reality of no more stimulus, and the withdrawals have started as the S&P500 is down 0.7% on the day. Also hurting sentiment was the poor US data as unemployment claims jumped in the week and the manufacturing sector data took a step backwards. Moves in commodity markets relatively muted, with Copper down over 1.25%. While Gold is up 0.2% and WTI crude looking a touch softer down 0.3%.


The Day Ahead




> EU September Final CPI & Final Core CPI : -0.3% & 0.2% exp.

> US September Core Retail Sales & Retail Sales : 0.4% & 0.7% exp.

> US September Industrial Production : 0.6% exp.

> US October Prelim UoM Consumer Sentiment : 80.2 exp.


If past performance indicates future performance, there may be a pare back of the losses seen overnight as investors choose to buy the dip in risk assets. However, if markets come to terms that fresh stimulus will not be coming from the US and the Brexit discussions end, the move lower may be fierce.


Long term the Dollar should be weaker, while a Biden win would likely see that happen quickly with a huge stimulus package on its way. Numbers from the US retail sector will hit the wires overnight tonight, however the headlines on Brexit will likely be the biggest driver as talks seem to be on a knife’s edge.


Range for the day : 0.7050 – 0.7130


AUD/USD Technicals


The break of the 100DMA may be a signal that there is more room for the pair to drop, however the rally back above sees the range hold for the time being. The weekly close above the 100DMA will be key as we look ahead to next week, with the pair still trapped in the range between 0.7203 and 0.7089.