Market Briefing: Market wobbles return
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Market swings. A bout of risk aversion overnight. Valuation concerns weighed on equities. Bond yields dipped. USD firmer. AUD & NZD lose ground.
RBA hold. No change in rates by RBA yesterday. Updated forecasts & guidance suggest there is a chance no more cuts are delivered, in our view.
US data. US Government Shutdown still in place. Private sector stats in focus. ADP employment & services ISM due tonight. This may generate more vol.
Global Trends
A burst of “risk off” negative market sentiment has washed through global markets over the past 24hrs. A modestly weak day yesterday in Asian equities (Japan’s Nikkei fell 1.7% from record highs) carried over to Europe and the US where the tech-focused NASDAQ (-2%) underperformed the broader S&P500 (-1.2%). There was no specific catalyst for the moves other than investors taking a breather after a stellar run and a few US CEO’s at a Global Investment Summit warning of a pullback due to valuation concerns. Indeed, as our chart shows the S&P500 is currently trading at a rather frothy forward price-to-earnings ratio of ~22.2x, well north of its long-run average (~16x).
These moves cascaded across other asset markets with haven demand for bonds pushing US yields a bit lower (-3bps across the curve). Cyclical growth linked assets such as base metals (copper -2.5%) and oil (WTI crude -1.1%) weakened. And in FX, the USD index edged higher and the JPY recovered some recently lost ground, though at ~153.65 USD/JPY remains near the upper end of its multi-month range. Elsewhere, EUR (the major USD alternative) slipped back under ~$1.15, GBP remains on the backfoot (now ~$1.3019, a low since mid-April), the AUD has been weighed down with yesterday’s ‘hawkish’ RBA forecasts not enough to offset global forces (now ~$0.6487), and the NZD touched its lowest point in almost 7-months (now ~$0.5640) with another subpar NZ jobs report also out this morning.
Looking ahead, the burst of risk aversion could continue over the near-term. In this type of environment, based on historical correlations, we would expect currencies such as the USD and JPY to remain firm. Macro wise, the US government shutdown is still in place. Official US statistics remain on ice so private gauges like ADP employment (12:15am AEDT) and the services ISM index (2am AEDT) take on added significance. In our opinion, some signs of stability in the US economy in these private sector indicators might also give the USD more support in the short-run.
Global event radar: US ADP Employment (Tonight), BoE (Thurs), China data (14th Nov), Global PMIs (21st Nov)
Trans-Tasman Zone
The burst of negative risk sentiment that has rippled through markets over the past 24hrs has given the USD a boost and exerted downward pressure on cyclical currencies such as the NZD and AUD (see above). The NZD (now ~ $0.5640) has also been weighed down a bit by this morning’s lackluster NZ labour market report. No jobs growth in Q3 means employment continues to decline in annual terms, while the NZ unemployment rate ticked up to 5.3%, its highest point since late-2016. The Q3 NZ jobs data reinforces the case for another RBNZ rate cut later this month and should keep the door open to more easing next year. In the short-run, we think this can keep the NZD on the backfoot, particularly considering the current market backdrop.
For the AUD (now ~ $0.6487, just under its 6-month average) global forces overwhelmed yesterday’s RBA meeting. As expected, following the hotter than predicted Australian CPI report the RBA kept the cash rate steady at 3.6%. On our reading of the RBA’s commentary and updated quarterly forecasts there appears little urgency to lower interest rates again. According to the “cautious” RBA it will “attentive to the data and the evolving assessment of the outlook and risks to guide its decisions”. With respect to the outlook, importantly inflation projections were revised higher with core CPI slowing to ~2.6%pa by H2 2027. Notably, the sluggish 2%pa growth run-rate and inflation trends are a result of a technical input assuming limited further rate changes. The RBA’s model incorporated ~1 more rate cut around the middle of 2026. Arguably, with inflation not at the target mid-point under these conditions it may not come about. Without a sustained upturn in unemployment we believe there is a high hurdle for further policy easing. There is a good chance the RBA doesn’t lower rates again this cycle, in our view.
Short-term, we think a continuation of the overnight risk aversion and/or signs of improvement in US ADP employment (12:15am AEDT) or ISM services index (2am AEDT) could give the USD a bit more of a helping hand which in turn may exert more downward pressure on the AUD. However, over the medium-term, we believe improvement in US/China trade relations, diverging policy trends between the RBA and other central banks such as the US Fed, and/or firmer growth in China as its stimulus push gains traction should help the AUD bounce back once market volatility subsides.
AUD & NZD event radar: US ADP Employment (Tonight), BoE (Thurs), 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, 0.5610 / 0.5700, 0.5740
Market Moves
Peter Dragicevich
Currency Strategist - APAC
Upcoming Events)
WEDNESDAY (5th November)
NZD RBNZ FSR Press Conference (11am)
CNY RatingDog PMI – Services (Oct) (12:45pm)
EUR Germany Factory Orders (Sep) (6pm)
EUR ECB Wage Tracker (8pm)
EUR ECB’s Villeroy & Nagel Speak (9pm)
THURSDAY (6th November)
USD ADP Employment (Oct) (12:15am)
USD ISM Services (Oct) (2am)
EUR ECB’s Kocher Speaks (2am)
NZD RBNZ Parliamentary Discussion (6:10am)
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
