Market Update 10/09/2024

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Markets had a quiet start to the week, with no major data releases and the FOMC in blackout. Dip buyers returned to the US stock market, helping it recover from last week’s declines. Most stocks gained, with the S&P 500 rising around 1%. In Europe, the Euro Stoxx 50 closed up 0.9%, and the FTSE 100 increased by 1.1%. US Treasuries saw little change from last week’s close, with the 10-year yield down 1 bps to 3.70%.

The USD strengthened, with the dollar index trading near 101.55. US interest rates reflect growing market expectations of a 0.25% rate cut at the September Fed meeting, though there’s still a decent chance of 50 bps moves being priced in across the following three meetings.

Yesterday, China’s CPI came in at 0.6% y/y slightly below expectations, while the PPI was -1.8% compared to the expected -1.5%. This added to ongoing concerns about China’s economic outlook.

■ AUD/USD traded in a narrow range overnight near 0.6660. Higher commodities prices, stronger US and European equities and a fall in the VIX index helped support AUD/USD against the stronger USD. Today’s Australian consumer confidence and NAB business survey (10.30am and 11.30am Sydney time respectively) are unlikely to alter market pricing for interest rate cuts by the Reserve Bank of Australia. However, analysts will scrutinise the NAB business survey for further continuation of disinflation and rising spare capacity in August. The next major event for AUD/USD is Wednesday night’s US CPI. 

 ■ USD rose modestly overnight and is currently trading near 101.6pts. It was a quiet night for currencies with no important economic data or central bank speeches. The two‑year US Treasury yield rose by 2bp to 3.67%. The S&P500 rose by a solid 1.1% after falling nearly 2% after Friday’s non‑farm payrolls. It will be another quiet day ahead as the market waits for Wednesday night’s US CPI for August. The CPI is the is the last major US economic data before next week’s important FOMC monetary policy meeting. The market is still undecided between a 25bp or 50bp cut from the FOMC next week. A downside miss on the core CPI (0.2%/mth expected) could increase pricing for a 50bp cut next week. Under this scenario, the USD could increase if risk markets such as equities retrench because of recession fears.  

■ AUD/CNH held on to the gains made yesterday after the weak Chinese CPI and PPI for August. Inflationary pressures are weak in China. The still struggling property sector and the government’s reluctance to directly support households remains a drag on consumer demand. Further policy support is needed to counter deflationary pressures in our view. We continue to forecast another round of interest rate cuts from the PBoC before year‑end, possibly as soon as this month.  

■ AUD/GBP edged higher overnight and is currently trading just under 0.51. This afternoon’s UK labour market data can influence UK interest rate expectations and AUD/GBP (4pm Sydney time). Another fall in UK weekly earnings growth will cause markets to price two more interest rate cuts from the Bank of England (BoE) by year end in our view, and support AUD/GBP modestly. The market is currently pricing 44bps of cuts by the BoE by year end. AUD/GBP has resistance at 0.5144 (38.2% fibbo).  

■ AUD/NZD edged higher overnight, supported by an improvement in risk sentiment. AUD/NZD has fallen around 3 NZ cents since its recent high in late July. Concerns around the possibility of a US recession and the lower iron ore price have weighed on AUD/NZD (see the chart of the day below for more). A downside surprise for tomorrow night’s US CPI could weigh on AUD/NZD if it raises fears about a US recession.

Mid-market rates.

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