Market Briefing: Market mood improves
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Upbeat mood. Sentiment improved overnight. US equities & bond yields ticked up on the back of some positive data. AUD & NZD also rose.
US tariffs. Legality of President Trump's tariffs is before the US Supreme Court. Market odds of a decision in Pres. Trump's favour fell overnight.
Data flow. US Government Shutdown still in place. Official stats on hold. Bank of England could cut rates again tonight. US Fed members also speaking.
Global Trends
Sentiment rebounded overnight with the bout of risk aversion stemming from equity market valuation concerns across the tech/AI sectors fading. These issues remain in place, but for now investors appear to be pushing them down the wall of worry once again. European equities rose as did US indices with the NASDAQ (+0.7%) outperforming the broader S&P500 (+0.4%). Elsewhere, bond yields increased with US rates rising ~5-7bps across the curve. The benchmark US 10yr yield (now ~4.16%) is off its recent lows but it remains in the bottom half of its multi-quarter range. In FX, the USD index tread water with the push-pull forces of a slightly firmer EUR (now ~$1.1488) and GBP (now ~$1.3048) offset by a weaker JPY (USD/JPY edged back over ~154, the upper end of the range occupied since mid-February). The backdrop generated some support for the NZD (now ~$0.5661), while the AUD poked its head back above ~$0.65.
A couple of better than predicted US data points helped the market mood. With the US government shutdown still in place (and now the longest in history) official statistics are on hold meaning private sector indicators are gaining added attention. ADP employment rebounded a bit more than expected with ~42,000 new jobs added in October after a couple of negative months. The services ISM also improved with a healthy rise in new orders, a smaller contraction in hiring intentions, and firmer prices paid pushing the overall index into ‘expansionary’ territory.
Also getting attention is the hearing in the US Supreme Court on the legality of President Trump’s sweeping tariffs. Notably, during arguments some of the conservative justices appeared sceptical about the use of emergency powers and that the President might have overstepped his authority. As our chart shows, market odds the Supreme Court rules in President Trump’s favour have slumped after today’s proceedings. If President Trump were to lose, refunds of the tariffs already paid are likely, and risk assets may react positively due to the improved global growth outlook. However, we would note the levies (which are a cornerstone of the Trump Administration’s policies) could be re-imposed via more complicated legal tools down the track.
Looking ahead, the Bank of England meets tonight (11pm AEDT). There is a chance the BoE delivers another 25bp rate cut. Given it is only partially priced in, if a cut is delivered, we think GBP would lose ground. In terms of the USD, with the US data on ice because of the shutdown, risk sentiment should remain in the driver’s seat near-term. However we remain of the view that slower US activity, widening cracks in the jobs market, and more US Fed rate cuts will see the USD gradually re-weaken over the medium-term.
Global event radar: BoE (Tonight), China data (14th Nov), Global PMIs (21st Nov)
Trans-Tasman Zone
The improvement in risk appetite, as illustrated by the rebound in equities and bond yields, has helped the NZD and AUD claw back some lost ground (see above). That said, at ~$0.5661 the NZD is still hovering around the bottom of its multi-month range. Yesterday’s sluggish NZ jobs report reinforced expectations for another RBNZ rate cut later this month (the last meeting of the year) with markets starting to flirt with the idea another larger 50bp reduction is announced to help revive momentum over the summer period.
The backdrop has also helped AUD perk up a little with it trading back above ~$0.65. A firmer AUD on the cross-rates has also been helpful with the AUD edging up ~0.2-0.6% versus EUR, JPY, CAD, and CNH over the past 24hrs. In level terms AUD/EUR (now ~0.5662) is nudging up towards the upper end of its multi-month range, while AUD/JPY (now ~100.23) remains somewhat stretched compared to various drivers such as yield differentials, in our view. AUD/NZD (now ~1.1487) is also around levels last traded in H2 2022 with economic and interest rate trends firmly in Australia’s favour.
Markets don't move in straight lines and more bouts of headline/data driven volatility should be anticipated over the period ahead. But on net, we continue to project the AUD to grind up into year-end and over early-2026 on the back of improvement in US/China trade relations, diverging policy trends between an 'on hold' RBA and other central banks such as the US Fed, more favourable yield spreads, and/or firmer growth in China as its stimulus push gains traction. We would also point out that as observed yesterday, bursts of negative equity market sentiment are tending to have less of a lasting impact on the AUD. As our chart shows, the AUD’s sensitivity to daily swings in global/US equities has declined over the past year. In our judgement, this reflects the flow support generated by Australia’s commodity export receipts and improvement in the nations net international investment position.
AUD & NZD event radar: BoE (Tonight), AU Jobs (13th Nov), China data (14th Nov), Global PMIs (21st Nov), AU CPI (26th Nov), RBNZ (26th Nov)
AUD levels to watch (support / resistance): 0.6440, 0.6470 / 0.6530, 0.6570
NZD levels to watch (support / resistance): 0.5580, 0.5620 / 0.5700, 0.5740
Market Moves
Peter Dragicevich
Currency Strategist - APAC
Upcoming Events)
THURSDAY (6th November)
JPY Labor Cash Earnings (Sep) (10:30am)
AUD Trade Balance (Sep) (11:30am)
EUR Germany Industrial Production (Sep) (6pm)
EUR ECB’s Kocher Speaks (7pm)
EUR ECB’s Schnabel Speaks (7:10pm)
EUR ECB's Guindos Speaks (7:30pm)
GBP BoE Decision (11pm)
EUR ECB’s Nagel Speaks (11:30pm)
FRIDAY (7th November)
USD Initial Jobless Claims (12:30am)
EUR ECB’s Nagel Speaks (1am)
USD Fed’s Williams & Barr Speak (3am)
USD Fed’s Hammack Speaks (4am)
EUR ECB’s Lane Speaks (5:30am)
USD Fed’s Waller Speaks (7:30am)
USD Fed’s Paulson Speaks (8:30am)
USD Fed’s Musalem Speaks (9:30am)
CNY Trade Balance (Oct) (no set time)
USD Fed’s Williams Speaks (7pm)
EUR ECB’s Nagel Speaks (11pm)
USD Fed’s Jefferson Speaks (11pm)
GBP BoE’s Pill Speaks (11:15pm)
SATURDAY (8th November)
USD Jobs Report (Oct) (12:30am)**
CAD Jobs Report (Oct) (12:30am)
EUR ECB’s Elderson Speaks (12:30am)
USD Uni. Michigan Sentiment (Nov P) (2am)
USD Fed's Miran Speaks (7am)
*Note, all times/dates provided are AEDT
** US data likely to be delayed/rescheduled due to government shutdown
About the author
