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Market has remained cautious as ongoing tensions in the Middle East continued to impact markets. Stocks declined while bond yields rose on the back of solid US economic data. The S&P 500 fell 0.4%, the Euro Stoxx 50 dropped 0.8% and the FTSE 100 slipped by 0.1%. Meanwhile, the yield on the US 10-year Treasury climbed 5.5bps to 3.83%. Oil prices surged 4.6% to $73.3bbl (WTI) following the potential for Israel to retaliate against Iran, as well as President Biden’s comments that the US is in talks with Israel about targeting Iran’s oil facilities.
In economic news, the US ISM services index exceeded expectations, rising 3.4 points to 54.9 in September, marking its third consecutive monthly increase and the highest level since February 2023. The activity/production index jumped by 6.6 points, and new orders were up 6.4 points to 59.4. Prices paid also increased by 2.1 points to 59.4. However, employment was the weak point, dropping by 2.1 points to 48.1. The strong ISM services index suggests that US economic momentum remains solid, especially when considering last week’s upward revision to GDP data. Since services account for about 80% of the US economy, this data indicates that the risk of recession has significantly diminished.
On that note, former NY Fed President Dudley acknowledged that his prediction of a hard landing was incorrect. He now believes that while the recession risk remains higher than usual, the Fed has a good chance of reducing inflation without triggering an economic downturn. He also expects that in a soft-landing scenario, the Fed will bring policy to a neutral level rather than moving into accommodative territory, predicting that the fed funds rate will bottom out at no less than 3.50%.
Overnight, dollar index (DXY) has firmed, and USD is mildly stronger.
Mid-market rates.
Currency Pair | Mid-market rate |
AUD/USD | 0.6846 |
AUD/NZD | 1.1020 |
AUD/JPY | 100.36 |
AUD/CNH | 4.8270 |
AUD/EUR | 0.6204 |
AUD/GBP | 0.5215 |
AUD/HKD | 5.3176 |
Chart of the day
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