Growth concerns abound
An overnight decline in US Sep. ISM Non-Manufacturing PMI to 52.6 (est. 55, prior 56.4) compounded Tuesday’s worrying US manufacturing miss. The disappointing print amplified what had already been heightened risk aversion from earlier-in-the-week, and subsequently drove risk assets lower across the board. As a consequence, yields fell, equities dropped and USDJPY gapped into 106.5 – however, interestingly, that earlier weakness has retraced somewhat walking into Asia.
Markets are looking to tonight’s spate of US economic data – NFPs, Average Hourly Earnings and Unemployment – due at 10.30pm AEST as a final point of confirmation (this week) that the US economy isn’t as insulated, as we might have thought, from the global manufacturing malaise and growth cooldown. A poor result tonight could see risk assets, especially equities, take another leg down and Fed easing expectations firm even more.
ASX Futures are back up to 6,500 intraday resistance having gone as low as 6,410 overnight. Intraday support to the downside sits at 6,480 and 6,460 beyond that. I’d be cautious as equities are likely to be risk hesitant awaiting tonight’s major event. Retain bearish bias.
RBA to take stock of Aussie Retail Sales
Following the RBA’s 25bps October rate cut which reminded monetary policy onlookers that weak household consumption was a significant source of uncertainty; markets will want to take stock of today’s 11.30am AEST Aug. Aussie Retail Sales data point and RBA Assistant Governor Luci Ellis’ speech at 1.20pm AEST. There’s also an 11.30am AEST release of the RBA’s Financial Stability Review, which makes for an interesting read, though, it’ll remain secondary to the former two events.
Aug. Retail Sales m/m is currently forecast at 0.5%. If it were to materialise, it would represent an improvement on the prior corresponding period print of 0.3% (Aug. 2018) and last month’s negative 0.1% miss. As Spring season nears with the worse of the cold weather just about passed, it wouldn’t be outrageous to see a moderate pick-up in Retail Sales. Though, given RBA Gov. Lowe only just recently described the economy as having reached a “gentle turning point” and is expected to “return to around trend growth over the next year”, it could also translate to a better albeit still soft retail environment.
Assistant Governor Luci Ellis is responsible for economic research and analysis at the RBA and is a chief advisor to Governor Lowe and the Board. Speaking in front of the Australian Industry Group (AI Group) in Geelong, markets will look to glean from her speech any variation from what’s been said before. Remember, as a key cog in the RBA economics department that feeds into Gov. Lowe – she’ll influence the tone and forward view of the economy disseminated by the RBA.
AUDUSD is back up to 0.674 having retraced from Aug. lows (0.667). Intraday resistance is around 0.6740-50. Expect AUDUSD local fundamentals to mix in with closely watched US data tonight.
How’s JPY looking?
Elsewhere, overnight price action saw USDJPY drop to its weekly lows as risk-off capital flows took hold on renewed growth concerns. Bearish pressure leading from heightened risk aversion remains firmly on USDJPY with upside resistance at 106.99 – 107. USDJPY is currently consolidating in early Asia, though, given it trades well below 50-D EMA (107.38), positioning is still only moderately net short and implied JPY volatility continues to rise – I’d retain bearish bias. Historically, as volatility across markets spike, JPY strengthening (USDJPY depreciation) tends to take place.
