Asia’s improved equity mood continued in Europe and US trade. ECB’s Draghi remained optimistic on Eurozone growth and inflation and Italy rallied on budget hopes. The US dollar slid in the London morning but then reversed in NY, leaving AUD/USD at 0.7230. Spot iron ore tumbled almost -7% to 4 month lows. Today’s calendar is light ahead of US data on consumer confidence and house prices.
AUD/USD followed the broad USD swings, rallying from 0.7230 in the Sydney afternoon to around 0.7275 in the London morning, then back to 0.7230 by early Sydney trade Tuesday. There was no apparent correlation with the ongoing slide in iron ore prices, with the benchmark spot price in China printing -6.8% at $64.45/tonne, a low since July and Dalian futures settling -2.1%.
NZD/USD similarly traced 0.6780 to 0.6815 and back. AUD/NZD slipped from 1.0685 to 1.0655, despite the improved risk sentiment.
EUR/USD round-tripped from 1.1330 to 1.1385 and back. ECB speakers, notably Chief Economist Praet and President Draghi, noted the moderation in recent data had been deeper than expected and that uncertainties such as protectionism had risen. Nevertheless they maintained their view that the economy was still in line with their projections and their bond purchases are set to end in December. However, the moderation means that the ECB will maintain significant monetary stimulus.
Germany’s November IFO business survey slipped more than anticipated (business climate 102.0, exp. 102.3, prev. 102.9) but broadly remained at elevated levels and in the range of the past 18 months. Italian equity and bond markets rallied sharply on reports that the government would make changes to its budget.
UK PM May appeared in parliament to affirm the ratification of the Brexit plan by the EU-27 leaders. She restated that there is no other option and that parliament should vote for the deal. However, the reception was decidedly dismissive, highlighting the difficulty facing May and her Cabinet over the next two weeks with the parliamentary debate now announced for 11th December. GBP/USD wandered around the mid-1.28s, for little net change.
USD/JPY however found clear direction, rising from 112.90 in the Sydney morning to 113.60 late NY, supported by the rise in equity markets and US bond yields.
The Dallas Fed manufacturing index posted a steep fall in November to 17.6, well below expectations (24.5) from 29.4 last month, a 15 month low. The detail showed broad-based declines across new orders, employment and CAPEX intentions, the recent plunge in energy prices a likely culprit for weaker sentiment in the Dallas region.
Interest rates
The US 10yr treasury yield rose from 3.05% to 3.09%, while 2yr yields eked a slightly lower range of 2.82%-2.84%. Fed fund futures repriced the chance of the next rate hike on 19 December at 80% (from 75%).
Event risk
Australia’s data calendar remains quiet ahead of the inputs to Q3 GDP which start tomorrow with construction work done. New Zealand releases trade data for October.
The US data calendar is reasonably busy but probably not market-moving. Sep S&P/Case-Shiller homes price are expected to show house price growth slowly losing momentum, around 5.2%yr. Nov Conference Board consumer confidence is anticipated to remain well above average, around 136.0 from 137.9 in Oct. Fedspeak involves Vice Chair Clarida on ‘Data Dependence and U.S. Monetary Policy” and regional Fed presidents Bostic, Evans and George on a panel at The Clearing House Annual Conference in NY.
