Market Briefing: Hang on for the ride
Market swings. US equities rose, while widening yield spreads support the USD. AUD slips back after China stimulus underwhelms.
FX trends. The Trump policy mix looks set to keep the USD stronger for longer. We think this will constrain the AUD's medium-term upside.
Event radar. Locally, wages & monthly jobs report are due. US CPI inflation, retail sales, speech by Fed Chair Powell, & China data also scheduled.
Market gyrations continued Friday as the win by President Trump in the US elections (and prospect of a Republican sweep of Congress) is incorporated into people’s projections, central bank actions washed through, and China unveiled yet another underwhelming support package. In terms of the US, an unconfirmed Financial Times report that Robert Lighthizer (a tariff advocate) could be in the frame to again become the US’ Trade Representative stoked concerns Trump will crystallize his ‘hawkish’ rhetoric and quickly implement large-scale protectionist measures. At the same time, authorities in China announced a CNY 10 trillion (US$1.4 trillion) program to refinance local government debt. While this can help curb financial risks bubbling away beneath the surface and shore up growth over the medium-term, myopic markets were looking for direct stimulus aimed at reinvigorating activity a bit more quickly.
The cross currents saw US equities continue to march higher to another record high (S&P500 +0.4%) while major stockmarkets in Europe and China generally slipped back by ~1%. Similarly, although bond yields across Europe declined (UK and Germany 10yr rates fell ~6-8bps), there was a flattening in the US curve with the 2yr rate ticking up (+4bps to 4.25%) and the 10yr a touch lower (though at ~4.30% it remains towards the upper end of its wide 4-month range). The news out of China saw base metal prices decline (Iron ore -4.3%, copper -2.9%). These dynamics flowed through to currencies with the USD index edging up. EUR (now ~$1.0710) and GBP (now ~$1.2915) have drifted back towards their respective post-US election lows, while USD/JPY consolidated (now ~152.65). Cyclical currencies were weighed down with NZD ~1% lower (now ~$0.5965) and the AUD underperforming (now ~$0.6585).
Data wise there are a few important signposts this week with the UK jobs report (Tues AEDT), US CPI inflation (Weds night AEDT), China activity data (Fri AEDT), and US retail sales (Fri night AEDT) due. Central bankers will also be hitting the wires with the long list of speakers including BoE Governor Bailey and Fed Chair Powell (both Fri AEDT). In our opinion, signs in the US retail sales figures that consumption (the engine room of the economy) is holding up, stickiness in US core inflation, and/or comments by Fed Chair Powell that further policy recalibration will be a meeting-by-meeting proposition can keep yield spreads in the US’ favour and the USD supported. Further ahead, as discussed in our recent research, we believe the Trump policy mix of trade-tariffs, greater fiscal spending, and measures to curb US immigration might generate an inflation impulse which prevents the US Federal Reserve from lowering interest rates as far as it might have. This, coupled with macro and geopolitical uncertainty, possible downward revisions to already tepid global growth, and Trump unpredictability points to a stronger for longer USD (see Market Musings: Trump 2.0 & the AUD).
Global event radar: US CPI (Thurs), Fed Chair Powell Speaks (Fri), China Data (Fri), US Retail Sales (Sat), Japan CPI (22nd Nov), Global PMIs (22nd/23rd Nov), RBNZ Meeting (27th Nov), EZ CPI (29th Nov)
AUD corner
The AUD’s modest recovery wasn’t sustained on Friday. The firmer USD, and pullback in base metal prices stemming from the underwhelming stimulus package out of China has seen the AUD drop back down towards ~$0.6585, near the mid-point of last week’s range (see above). The global backdrop also saw the AUD underperform on the crosses. The AUD is ~0.4-0.9% lower against the EUR, NZD, CNH, and GBP compared to this time on Friday, with larger declines recorded against the JPY (-1.6%) and CAD (-1.1%). Although some perspective is needed with most of the moves essentially just unwinding the AUD’s outperformance over the previous day.
This week, in addition to global economic releases including US CPI inflation (Weds night AEDT), China activity data (Fri AEDT), US retail sales (Fri night AEDT), and a speech by Fed Chair Powell (Fri AEDT), Q3 wages (Weds AEDT) and the October jobs report (Thurs AEDT) are also out locally. Base effects related to last years bigger increase in award/minimum wages should see annual wage growth decelerate. But this shouldn’t be a surprise for the RBA. Rather it is likely to be monitoring the labour market report to help assess inflation risks. In our judgement, given the high level of activity across labour intensive service providing sectors, another solid month of job gains is anticipated (mkt +25,000) with the unemployment rate also predicted to hold steady at ~4.1%. The resilience in the labour market is a pillar underpinning our view that the RBA will lag its global counterparts in terms of when it kicks off and how many steps it takes during the easing cycle. We continue to believe that the start of a gradual/modest RBA rate cutting phase is a story for H1 2025.
As discussed, while we think the evolving positive USD dynamics should act to constrain the AUD’s medium-term upside (i.e. we now see the AUD hovering in the mid-$0.60s over the next few quarters rather than ticking up to the low-$0.70s), we don’t feel it is likely to sustainably fall much below recent lows. For one, a degree of ‘bad news’ already looks baked into the AUD given it is tracking at a ~3 cent discount to the average of our ‘fair value’ models. Importantly, it also shouldn’t be forgotten that FX is a relative price, and several factors remain in the AUD’s favour when it comes to AUD-crosses. Over time we think the diverging trends between the RBA and other central banks should help the AUD outperform EUR, CAD, NZD, CNH, and GBP. Further signs the Australian labour market is holding up can reinforce these trends. Moreover, when it comes to trade, in our assessment Australia’s rather tariff-insulated export basket due to minimal domestic manufacturing, and chance authorities in China attempt to counter any US tariff-induced export pain via steps to bolster internally focused infrastructure investment could prove to be relative AUD supports. See Market Musings: Trump 2.0 & the AUD.
AUD event radar: AU Wages (Weds), US CPI (Thurs), AU Jobs (Thurs), Fed Chair Powell Speaks (Fri), China Data (Fri), US Retail Sales (Sat), RBA Gov. Bullock Speaks (21st, 28th Nov), Japan CPI (22nd Nov), Global PMIs (22nd/23rd Nov), RBNZ Meeting (27th Nov), EZ CPI (29th Nov)
AUD levels to watch (support / resistance): 0.6500, 0.6550 / 0.6680, 0.6720
Market Moves
Peter Dragicevich
Currency Strategist - APAC
Upcoming Events
MONDAY (11th November)
NZD 2yr Ahead Inf. Expectations (Q4) (1pm)
TUESDAY (12th November)
NZD Card Spending (Oct) (8:45am)
AUD Consumer Confidence (Nov) (10:30am)
AUD Business Conditions (Oct) (11:30am)
GBP Jobs Report (Sep/Oct) (6pm)
EUR ECB’s Rehn Speaks (7pm)
EUR ECB’s Centeno Speaks (8pm)
EUR Germany ZEW Survey (Nov) (9pm)
USD NFIB Small Business Optimism (Oct) (10pm)
WEDNESDAY (13th November)
USD Fed’s Waller Speaks (2am)
USD Fed’s Barkin Speaks (2:15am)
USD Fed’s SLOOS (6am)
USD Fed's Kashkari Speaks (6am)
USD Fed’s Harker Speaks (9am)
USD Fed’s Barkin Speaks (9:30am)
AUD Wage Price Index (Q3) (11:30am)
GBP BoE’s Mann Speaks (8:45pm)
EUR Industrial Production (Sep) (9pm)
THURSDAY (14th November)
USD CPI Inflation (Oct) (12:30am)
USD Fed's Kashkari Speaks (12:30am)
USD Fed's Williams Speaks (1:30am)
USD Fed’s Musalem Speaks (5am)
USD Fed’s Schmid Speaks (5:30am)
AUD RBA Gov. Bullock Speaks (10am)
AUD Jobs Report (Oct) (11:30am)
EUR GDP (Q3 P) (9pm)
USD Fed's Kugler Speaks (11pm)
EUR ECB Meeting Minutes (11:30pm)
FRIDAY (15th November)
USD PPI Inflation (Oct) (12:30am)
USD Initial Jobless Claims (12:30am)
USD Fed’s Barkin Speaks (1am)
EUR ECB’s Schnabel Speaks (5:30am)
USD Fed Chair Powell Speaks (7am)
GBP BoE Governor Bailey Speaks (8am)
USD Fed’s Williams Speaks (8:15am)
JPY GDP (Q3 P) (10:50am)
AUD RBA’s Jones Speaks (11:30am)
CNY Industrial Production (Oct) (1pm)
CNY Retail Sales (Oct) (1pm)
CNY Fixed Asset Investment (Oct) (1pm)
GBP GDP (Q3 P) (6pm)
EUR EU Commission Forecasts (9pm)
SATURDAY (16th November)
USD Retail Sales (Oct) (12:30am)
USD Industrial Production (Oct) (1:15am)
EUR ECB’s Lane Speaks (2am)
*Note, all times/dates provided are AEDT
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