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More cautious tone to equity markets ahead of first US Presidential debate. NZD and AUD recover some of last week's hefty losses. Oil prices down 4%

Currencies
More cautious tone to equity markets ahead of first US Presidential debate. NZD and AUD recover some of last week's hefty losses. Oil prices down 4%

After yesterday’s strong rally, global equity markets are trading more cautiously, ahead of the first US Presidential debate. The NZD and AUD have shown further recovery after last week’s plunge, while EUR has also recovered. Oil is much weaker.

After two strong trading sessions, US equities are weaker, with the S&P500 index currently down 0.4%. Focus is turning to the first US Presidential debate between President Trump and Biden that starts from 2pm NZ time. Historically, Presidential debates have little impact on voting but still there is plenty of interest in how it all goes.

US fiscal stimulus talks remain at an impasse. The latest plan from the House Democrats saw a reduction in the proposed package to $2.2 trillion, still well up from the $1.5 trillion limit that Republicans would be willing to support. Trump’s economic advisor Kudlow said that the true cost of the Democrat’s package is more like $2.6 trillion and about one-third of it looks like not being strictly tied to the pandemic. Talks are expected to continue but most in the market have given up on expecting agreement on fiscal stimulus this side of the elections.

Economic data releases have been interesting, but not market moving.  US consumer confidence rose by the most in 17 years, blasting up well above market expectations to reach 101.8 on the Conference Board measure. Confidence remains well below pre-COVID levels and while the jobs hard-to-get versus jobs-plentiful spread nudged higher, this labour market indicator remained consistent with a sluggish recovery. The US trade deficit looks set to reach a record high in August, with the advanced release on the goods side rising to a record $82.9b, driven by higher imports.

Euro-area economic confidence rose for a fifth consecutive month and by more than expected, albeit remaining well below pre-COVID levels. German CPI fell by 0.4% y/y, the lowest rate in more than five-years, boosting the case for further monetary and fiscal stimulus.

Oil prices have plunged in the order of 4% on demand concerns, with major independent traders noting at a conference that would it take 18-24 months to get demand back to pre-COVID levels. Brent and WTI broke below their 100-day moving averages, adding to negative sentiment on the commodity. Brent crude got down to $40.50, while WTI got down to $38.50.

As usual, there is little to say about the rates market. US Treasuries remain well-contained, with the 10-year rate down less than 1bp to 0.64%. NZ rates barely moved yesterday, with no more than a 1bp rise across most swap and NZGB yields.

Bank of England Governor Bailey has kept the market guessing on whether a negative rates policy will be adopted.  He noted the groundwork currently being done, but continued to indicate that it would just be another possible tool in the toolbox. He said he can’t easily put a date on the end of the negative rate review – it depends on technical factors to work through regarding implementation – which gives the impression that the tool wouldn’t be ready for some time yet.

In currency markets, the NZD and AUD have shown further signs of recovery after their more than 3% plunges last week. The AUD moved higher last night to consolidate around the 0.7125 mark. The NZD is hovering around 0.6590, after meeting resistance just under 0.66 through the night. NZD/AUD has nudged down further, to 0.9250, adding some succour to the view that the recent break above 0.93 was a move too far.

EUR has also recovered, up 0.6% for the day to 1.1740, while GBP and JPY have been fairly flat. Month-end flows have been in play and will continue through the next 24 hours.

It’s a busy economic calendar in the next 24 hours. Domestically, we’ll be interested in whether the final ANZ business outlook survey for September confirms the improvement seen in the early release. China PMI data will give some clues on how the country’s recovery is progressing. Tonight sees a number of US releases, including ADP employment.

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1 Comments

So we should see 4% drop at the pumps shortly? Won't hold my breath. #anothernzcartel

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