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Global Market Update
The View from Australia

by Craig Killaby | October 10, 2021

Data/Speakers

 

> CN September Caixin Services PMI : 53.4 v. 49.3 exp.

> CA September Employment Change & Unemployment Rate : 157.1K & 6.9% v. 59.5K & 6.9% exp.

> US September Average Hourly Earnings : 0.6% v. 0.4% exp.

> US September Non-Farm Employment Change & Unemployment Rate : 194K & 4.8% v. 490K & 5.1% exp.

 

Weekend Headlines (BBG)

> US Congress passed an agreement to raise the debt ceiling until the beginning of December, setting up yet another fight between the two sides as the debt continues to rise in the US

> NZ reported 60 new cases of COVID19, igniting some selling of the NZD as investors re-calibrate the aggressiveness of the RBNZ’s normalisation path and risk aversion hits the currency in early trading

> Goldman Sachs has cut their growth forecast for the US economy, citing a slower than expected recovery in consumer spending and supply chain issues

What you need to know

As China returned from their Golden Week holiday Friday, markets braced for the potential headwinds to come as energy shortages and the Evergrande story grips Asian markets. Caixin services PMI numbers came in better than market estimates, however it did little to impact FX with the AUD trading in a tight range ahead of the US employment report and sliding marginally into the Tokyo fixing. All eyes were on employment figures from North America, as both the Canadians and Americans released their September job figures. The Loonie was buoyed by a strong rebound in CA employment, with the economy erasing nearly all the job losses seen during the pandemic thus far and pushing CAD 0.5% higher against the Dollar leading into the NFP release.

 

The US employment report was interesting, with the headline number missing the mark by a wide margin and seeing sub 200K jobs added in the month. The key takeaway was the persistent move higher in wages, up 0.6% in the month while the unemployment rate dropped below 5.0%. Although the headline number missed, the inflationary pressures are mounting and will likely see the Fed start with their policy tightening as early as November. Key measures of inflation in bond markets are flashing red, with yields and breakevens continuing their move higher with the UST10y yield sitting over 1.61% on the open today.

 

The Dollar is down marginally, seeing some of its haven appeal lost as the US debt ceiling fight was kicked down the road for another two months. US equity markets finished the day in the red, down 0.25% as the tightening narrative was boosted on the employment report. Commodity markets have rebounded sharply following the recent selloff, with supply chain bottlenecks causing significant supply shortages and pushing up prices from oil to corn the worries are mounting. Gold remained resilient despite the strong move higher in rates, up a meagre 0.10% while Iron Ore was the story as the price rebounded near 8% as China came back following their holiday. WTI crude looks to make a run at the US$80/barrel level this week as rising prices is putting the global recovery at risk.

 

The Day Ahead

 

Data

 

> EU August Italian Industrial Production : -0.4% exp.

> US Bank Holiday – Columbus Day

> CA Bank Holiday – Thanksgiving

 

After over 100 days in lockdown, NSW opens their economy as vaccination rates continue to push higher and life looks poised to return to some semblance of normal. Business confidence is likely to rebound in a major way as the re-opening looks to be fast tracked under the new Premier.

 

VIC is still lagging behind slightly, with COVID cases hitting all-time levels in the state over the weekend as the Delta outbreak takes hold. The inflation story is likely to be the talk of markets this week, with consumer and producer figures on the docket in the US alongside the FOMC’s minutes the Fed’s tightening path will be in focus. AU investors will have their eyes on the September employment figures on Thursday, although unlikely to have a major impact on the AUD as the re-opening is likely to boost sentiment. The NZD is struggling in early trading, with NZ’s COVID zero strategy coming under heavy pressure as the country’s cases continue to rise.

 

Range Today : 0.7260 – 0.7320

 

AUD/USD Technicals

 

After being relatively resilient despite some of the risk-off headlines last week, the pair has been able to open the week above the 0.7300 handle and only a touch below key resistance at 0.7311 (55DMA). Will need to see the NFP high of 0.7338 broken to bring the 100DMA at 0.7427 into the picture, however the sentiment change and the commodity price rebound sets the stage for a move higher. The weekly low of 0.7226 is the target on a selloff, although the momentum seems to be towards a drift higher.

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