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First, the US east and gulf ports went on a strike on Tuesday, as expected. It will cause supply disruptions and increase the price pressures before November presidential elections. And we know from the beginning that there won’t be a quick end to the negotiations because the Biden administration is not willing to intervene in the dispute.

Then, the geopolitical tensions in the Middle East intensified after Iran has reportedly fired about 200 missiles on Israel as response to Israeli attacks on Hezbollah in Lebanon. Israel said it will retaliate. The involvement of Iran could in fact lead to a wider and a more serious conflict across the region, and threaten oil supply. This is why, the barrel of US crude gained more than 3.50% yesterday but fell short of clearing offers above the $72pb level, the major 38.2% Fibonacci retracement on July – September retreat that should distinguish between the actual bearish trend and a medium-term bullish reversal.

Looking back, it’s been almost a year since the war in Gaza began. The first months of the war pushed oil prices higher, yet the conflict had little sustainable impact beyond April, when traders started giving more weight to the slowing Chinese and world economy than the supply disruptions – considering that the world was fed enough oil from the Middle East and elsewhere to worry about the Middle East disruptions. But if Iran – which produces around 3 mio barrels per day – gets seriously involved in the conflict, we could see the price of a barrel remain under positive pressure for a prolonged period.

This being said, the geopolitical tensions have a limited impact in the medium to long run price trends, and the gains on the back of tensions should be given back with de-escalation and/or as the market gets used to the headlines and divert focus to something else.

It’s in this tense and uncertain geopolitical and macroeconomic setup that OPEC leaders will announce their latest decision this week. They are not expected to make any changes to their previous stance. The cartel will probably start loosening its production restrictions in December and the latest reports suggest that Saudi Arabia will seek a wider market share rather than higher prices moving forward. As such, in the short-run, the level to watch is $72.85pb for WTI and $78pb for Brent crude. Rallies above these levels will be tactical opportunities to benefit from the geopolitical tensions. But limited escalation or de-escalation should keep the prices below the cited levels due to the prospects of higher supply from the beginning of next year. The only thing that could sustainably reverse the trend is.. China. And the improvement there is yet to be seen.

Risk off

Mounting tensions of the Middle East sent a wave of worry across the global markets yesterday. Besides oil, safe haven assets including US treasuries, gold and the US dollar gained as well. Gold remains bid near its ATH levels, while the US 10-year yield tested the 3.70% to the downside. The dollar index jumped and the S&P500 retreated nearly 1% on the back of the risk-off investors. The VIX index spiked past 20. Technology and cryptocurrencies were the most hardly hit. There is no direct reason for that, besides the sharp decline in risk appetite, but Nasdaq 100 dropped nearly 1.50% yesterday, while Bitcoin tested the $60K support.

And economic data couldn’t cheer up the risk takers.

The data released yesterday in the US was mixed. The jolts data showed a surprise jump in job openings in August, but the ISM data suggested that the contraction in the manufacturing didn’t improve, prices shrank into the contraction territory and employment deteriorated faster than expected.

Due today, the ADP report is expected to print 124K new private job additions last month, slightly higher than the 99K printed a month earlier, but still lower than the past 12-month average. Activity on Fed funds futures currently assesses about 36% chance for a 50bp cut in FOMC’s November meeting – because Powell told investors earlier in the week that he sees two 25bp cuts for the remainder of the year rather than another jumbo cut. But any weakness in the US jobs report this week could flip that probability back in favour of a jumbo cut.

In Europe, the September update to the euro area’s CPI data suggested that inflation in Europe sank to 1.8% last month: that’s below the European Central Bank’s (ECB) 2% policy target and a strongly flashing green light for the ECB to deliver another 25bp cut in its October meeting. The EURUSD fell to 1.1045 yesterday and remains under pressure this morning. The pair has now cleared the minor 23.6% support on April to September rally, trend and momentum indicators remain comfortably negative and the RSI doesn’t warn of oversold conditions just yet. Therefore, if we don’t see a big surprise in the US jobs data, the EURUSD should continue to extend losses toward the 1.10, and to 1.0980, the major 38.2% Fibonacci retracement that should distinguish between the actual positive trend and a medium-term bearish reversal.

In focus today

In the US, ADP private sector employment growth will provide some early hints of what to expect from Friday's NFP release - consensus expects a modest rebound from August.

In the euro area, we receive the unemployment rate for August. Recently, we have seen the first signs of a cooling in the euro area labour market, but overall, it remains very strong.

In Poland, NBP will announce their rate decision, where we and markets expect the policy rate to stay unchanged at 5.75%.

Economic and market news

What happened overnight

Overnight, the vice-presidential debate between Republican J.D. Vance and Democrat Tim Walz took place. The candidates discussed issues like U.S. foreign policy, inflation, and abortion. The debate remained cordial, with each focusing their attacks on the opposing presidential candidate, as traditionally has been the case in vice-presidential debates. Vance criticized Vice President Kamala Harris on border security, while Walz targeted former President Donald Trump over abortion rights. Overall, the debate was fairly civil compared to last month's presidential faceoff, and did not change prediction markets much, which still show Harris having a slight edge.

What happened yesterday

In the US, Tuesday's data provided mixed signals, but overall supported our notion that the economy remains on a solid footing. The September ISM Manufacturing index was unchanged at 47.2, with weaker sub-indices for prices and employment but stronger new orders. The inventories sub-index also declined, and a combination of stronger order books and falling inventories is often a positive signal for demand. August's JOLTs job openings rebounded after ticking down in July, and past month's data was revised up slightly. Hiring continued to slow, though the number of involuntary layoffs also declined. Thus, the reading suggested that labour markets conditions are not weakening sharply.

In the euro area, as expected September HICP inflation declined to 1.8% y/y, while the core measure was stickier, dropping to 2.7% y/y from 2.8% in August. The headline decline was mainly driven by energy inflation, due to base effects and a monthly price decline in energy prices. Core inflation was driven by very low goods inflation at 0.4% y/y and high services inflation at 4.0% y/y in September. The ECB is still focused on too high services inflation, which printed 3.97% y/y in September, which remains a key upside risk for the inflation outlook. That said, the most recent momentum shows some easing signs, and all in all the September print was supportive for an October rate cut by the ECB.

In Sweden, the Riksbank Minutes for September indicated that the discussion between 25bp vs 50bp was absent for most members and no one seemed to prefer moving in 50bp steps. For a more detailed overview, please see Riksbank - September 2024 Minutes - No member arguing for a 50bp cut, 1 October.

In Middle East, tensions are far from abating. Israel commenced a ground offensive in Lebanon after two weeks of airstrikes against Hezbollah, including killing its former leader, Nasrallah. Iran retaliated by launching a missile attack on Israel, with drones and ballistic missiles. The market reaction to Iran's attack was quite limited, and oil prices even reversed some of the earlier gains (at some point up about 4% during yesterday's session). This in line with our assessment that the threshold for market reaction to a such protracted conflict is very high.

Israel and the US vowed to retaliate against Tehran, with Israeli prime minister Netanyahu warning "Iran made a big mistake tonight - and it will pay for it". In our view, the best-case scenario is something like what happened in April. Then Iran launched missiles that were completely intercepted, and Israel responded with a missile attack on Iran that also caused very limited damage.

Equities: Global equities were lower yesterday despite solid increases in Japan. The US session was beset with several sets of information that could obscure the distinction between noise and genuine drivers. However, it is worth examining the sector rotation, where energy emerged as the best-performing sector following a rise in oil prices due to escalating tensions in the Middle East. Secondly, technology was down significantly, while industrials continued to perform well. Hence, this downturn was not solely due to poor macroeconomic data, but also significantly influenced by sector-specific stories, with high-flying tech companies like Apple and Nvidia being particularly affected. This morning, Chinese stocks have risen sharply in Hong Kong, while Japanese stocks are down by 2%, highlighting the diverse and substantial factors currently affecting financial markets. In the US yesterday, the Dow closed down 0.4%, the S&P 500 fell by 0.9%, the Nasdaq declined by 1.5%, and the Russell 2000 increased by 1.5%. European futures are higher this morning while US once are lower.

FI: European yields declined from the long end yesterday with the 30y point down almost 10bp to 2.33%. The benchmark 10y German bund is now flirting with the 2% level after the 8bp rally to 2.03% yesterday. While the move can somewhat be explained with the European inflation figures released, supporting the case for an October rate cut, the bullish flattening of the curve may be explained if markets expressing concern above the service sector as well (and in turn the services growth sector). Markets are now pricing 23bp for October and another 32bp for December. Yesterday, ECB's Rehn said that the inflation slowing meant that there was more grounds to be covered in October on a potential rate cut. Tomorrow, we look forward to Schnabel speaking at 18:45 CET. We also have a string of central bank speakers today (Lane, de Guindos, Bowman etc).

FX: Iran's missile strike on Israel increased safe-haven demand, boosting the USD and pushing oil and gold prices higher. The move faded somewhat towards the end of the session as reported damages were seemingly limited. The setback to risk hurt the SEK whereas the NOK found support in rising oil prices, although we emphasize that rising oil prices need not be interpreted as a buy signal for the NOK. Yesterday we went short AUD/USD as we see the soft landing scenario being priced to perfection and subject to two-sided US growth risks.

Daily Pivots: (S1) 1.3467; (P) 1.3504; (R1) 1.3526; More...

USD/CAD's recovery lost momentum after breaching 55 4H EMA (now at 1.3514). But intraday bias stays neutral first, as more consolidations could be seen above 1.3418. Nevertheless, outlook will remain bearish as long as 1.3646 resistance holds. Firm break of 1.3416 will resume the fall from 1.3946 to 61.8% projection of 1.3946 to 1.3439 from 1.3646 at 1.3333.

In the bigger picture, corrective pattern from 1.3976 (2022 high) is extending with another falling leg. While deeper decline could be seen, strong support should emerge above 1.2947 resistance turned support to bring rebound. Rise from 1.2005 (2021 low) is still in favor to resume at a later stage.

Global markets are showing mixed performance as sentiment diverges across regions. In the US, stocks closed lower with traders displaying increased caution. ISM manufacturing report indicated continuation of the prolonged recession in the sector, though without any sharp deterioration. Attention is now focused on upcoming key economic data, including tomorrow's ISM services report and Friday’s non-farm payrolls, both of which will help shape market sentiment. Meanwhile, the escalating tensions in the Middle East are also being closely monitored for their impact on oil prices, global supply chains, and inflationary pressures.

In contrast, Hong Kong's market continues to rally strongly, trading up over 5% in its morning session. The city’s benchmark index has surged nearly 20% since China unexpectedly introduced a significant stimulus package last week, adding more than USD 770B in market valuation to local stocks. However, this investor optimism hasn't spread evenly across the region. While China remains on holiday, Japan's Nikkei index is trading lower, reflecting a more subdued regional outlook.

In the currency markets, Canadian Dollar has rebounded notably, fueled by the rise in oil prices as Middle East tensions intensify. Loonie is now the strongest performer for the week, overtaking Aussie, which has also been supported by the ongoing strength in Hong Kong's stock market. Dollar is in third place, as traders await further direction from upcoming economic data releases.

On the other side, Yen remains the weakest performer, struggling to find momentum for a rebound. Euro follows as the second weakest currency, with more ECB officials suggesting the possibility of another 25bps rate cut this month. Swiss Franc is the third weakest, following comments from the new SNB chair indicating further rate cuts is on the horizon.

Kiwi is lagging behind other commodity-linked currencies, positioned in the middle of the pack, as economists increasingly call for a 50 bps rate cut by RBNZ next week. Sterling is trading mixed, with little notable news coming out of the UK to influence its movement.

Technically, Hong Kong HSI broke through 100% projection of 14794.16 to 19706.12 from 16964.27 at 21876.24 today with strong upside acceleration. A weekly close above this level would set the stage for further rally to 161.8% projection 24911.83. While trades appears to be reluctant to take profit at this stage, 25k handle would be very tempting, and thus a near term top could be formed there, to the the rally into a consolidation phase.

In Asia, at the time of writing, Nikkei is down -1.65%. Hong Kong HSI is up 5.99%. China is on holiday. Singapore Strait Times is up 0.34%. Japan 10-year JGB yield is down -0.0162 at 0.836. Overnight, DOW fell -0.41%. S&P 500 fell -0.93%. NASDAQ fell -1.53%. 10-year yield fell -0.59 to 3.743.

WTI surges on Middle East Conflict, but viewed as corrective move

Oil prices surged overnight, with WTI crude breaking back above 70 as tensions in the Middle East escalated. Iran launched a retaliatory strike on Israel in response to the recent killing of Hezbollah leader Hassan Nasrallah and an Iranian commander in Lebanon. This has fueled concerns that Israeli retaliation could target Iran's oil infrastructure, posing a significant risk to global oil supplies.

As Israel shifts its focus from Gaza to Lebanon and Iran, the conflict is entering a phase with greater implications for energy markets. The prospect of disruptions in one of the world's most critical oil-producing regions has led to heightened market anxiety, with fears of further price increases if the conflict intensifies.

Technically, despite the rebound, WTI is seen as extending the near term consolidations pattern from 65.53 only. While further rise cannot be ruled out, outlook will stay bearish as long as 55 D EMA (now at 73.72) holds. Larger down trend is still expected to extend through 65.53 to 63.67 (2023 low) at a later stage. Tentatively, the medium term target is 100% projection of 95.50 to 67.79 from 87.84 at 60.13.

However, sustained break of 55 D EMA will argue that a medium bottom was already from, and stronger rebound would be seen back towards 80 psychological level.

SNB's Schlegel: Prepared for more rate cuts as inflation downside risks outweigh upside

At an event overnight, new SNB Chair Martin Schlegel indicated that the central bank is prepared to continue easing monetary policy if necessary to maintain medium-term price stability, and the central bank "can't rule out negative rates either."

Schlegel emphasized that SNB sees "downward risks to Swiss inflation as bigger than upward risks," suggesting that deflationary pressures are a significant concern for the Swiss economy.

He also acknowledged the challenges posed by the strong Swiss franc for exporters. However, he pointed out that the primary issue facing Swiss companies is "weak foreign demand," rather than currency strength alone.

Markets are currently pricing in an 85% probability that SNB will lower rates further by 25bps to 0.75% at its December meeting.

ECB's Kazaks: Recent data clearly points towards Oct rate cut

ECB Governing Council member Martins Kazaks indicated that recent data "clearly point in the direction of a cut" in interest rates at the upcoming October meeting. Kazaks highlighted the increasing risks to the Eurozone economy, noting that the balance between stubborn inflation, particularly in services, and weak growth is tilting toward the latter.

He emphasized that even after another 25bps cut, which would bring the deposit rate to 3.25%, the rate would still "restricts economic activity" and curb inflation in the services sector.

Kazaks expressed concern over the “worrying” state of the economy, especially the potential for a sudden weakening of the job market. "If corporates start to shed labor, this snowball may start rolling," he cautioned, warning of the risks of a tipping point that could exacerbate economic decline.

Looking ahead

Eurozone unemployment rate is the only feature in European session. Later in the day, US will release ADP employment.

USD/CAD Daily Outlook

Daily Pivots: (S1) 1.3467; (P) 1.3504; (R1) 1.3526; More...

USD/CAD's recovery lost momentum after breaching 55 4H EMA (now at 1.3514). But intraday bias stays neutral first, as more consolidations could be seen above 1.3418. Nevertheless, outlook will remain bearish as long as 1.3646 resistance holds. Firm break of 1.3416 will resume the fall from 1.3946 to 61.8% projection of 1.3946 to 1.3439 from 1.3646 at 1.3333.

In the bigger picture, corrective pattern from 1.3976 (2022 high) is extending with another falling leg. While deeper decline could be seen, strong support should emerge above 1.2947 resistance turned support to bring rebound. Rise from 1.2005 (2021 low) is still in favor to resume at a later stage.

Economic Indicators Update

Key Highlights

• AUD/USD faced resistance near 0.6940 and started a downside correction.
• A key bullish trend line is forming with support at 0.6880 on the 4-hour chart.
• Gold could rise again and trade toward the $2,700 level.
• Bitcoin trimmed gains and traded below the $64,000 level.

AUD/USD Technical Analysis

The Aussie Dollar climbed higher toward 0.7000 against the US Dollar. AUD/USD failed to continue higher and started a correction phase.

Looking at the 4-hour chart, the pair traded as high as 0.6941 and recently corrected lower. There was a move below the 0.6920 level, but the pair remained well above the 100 simple moving average (red, 4-hour) and the 200 simple moving average (green, 4-hour).

On the downside, immediate support sits near the 0.6880 level. There is also a key bullish trend line forming with support at 0.6880 on the same chart, below which the pair might test 0.6865. The next key support sits near the 0.6800 level and the 100 simple moving average (red, 4-hour).

Any more losses could send the pair toward the 0.6750 support zone. On the upside, the bears are active near the 0.6920 level. A close above the 0.6920 level could set the tone for another increase.

The next major resistance could be 0.6940. A clear move above the 0.6940 level might send AUD/USD toward 0.7000. Any more gains might call for a test of the 0.7045 zone.

Looking at Gold, the bulls are now aiming for another increase and might aim for a move toward the $2,700 level.

Upcoming Economic Events:

• US ADP Employment Change for Sep 2024 - Forecast 120K, versus 99K previous.

Oil prices surged overnight, with WTI crude breaking back above 70 as tensions in the Middle East escalated. Iran launched a retaliatory strike on Israel in response to the recent killing of Hezbollah leader Hassan Nasrallah and an Iranian commander in Lebanon. This has fueled concerns that Israeli retaliation could target Iran's oil infrastructure, posing a significant risk to global oil supplies.

As Israel shifts its focus from Gaza to Lebanon and Iran, the conflict is entering a phase with greater implications for energy markets. The prospect of disruptions in one of the world's most critical oil-producing regions has led to heightened market anxiety, with fears of further price increases if the conflict intensifies.

Technically, despite the rebound, WTI is seen as extending the near term consolidations pattern from 65.53 only. While further rise cannot be ruled out, outlook will stay bearish as long as 55 D EMA (now at 73.72) holds. Larger down trend is still expected to extend through 65.53 to 63.67 (2023 low) at a later stage. Tentatively, the medium term target is 100% projection of 95.50 to 67.79 from 87.84 at 60.13.

However, sustained break of 55 D EMA will argue that a medium bottom was already from, and stronger rebound would be seen back towards 80 psychological level.

ECB Governing Council member Martins Kazaks indicated that recent data "clearly point in the direction of a cut" in interest rates at the upcoming October meeting. Kazaks highlighted the increasing risks to the Eurozone economy, noting that the balance between stubborn inflation, particularly in services, and weak growth is tilting toward the latter.

He emphasized that even after another 25bps cut, which would bring the deposit rate to 3.25%, the rate would still "restricts economic activity" and curb inflation in the services sector.

Kazaks expressed concern over the “worrying” state of the economy, especially the potential for a sudden weakening of the job market. "If corporates start to shed labor, this snowball may start rolling," he cautioned, warning of the risks of a tipping point that could exacerbate economic decline.

At an event overnight, new SNB Chair Martin Schlegel indicated that the central bank is prepared to continue easing monetary policy if necessary to maintain medium-term price stability, and the central bank "can't rule out negative rates either."

Schlegel emphasized that SNB sees "downward risks to Swiss inflation as bigger than upward risks," suggesting that deflationary pressures are a significant concern for the Swiss economy.

He also acknowledged the challenges posed by the strong Swiss franc for exporters. However, he pointed out that the primary issue facing Swiss companies is "weak foreign demand," rather than currency strength alone.

Markets are currently pricing in an 85% probability that SNB will lower rates further by 25bps to 0.75% at its December meeting.

• We now expect the RBNZ to cut the OCR by 50bps to 4.75% at the October Monetary Policy Review.
• We also expect another 50bps cut to 4.25% at the November Monetary Policy Statement.
• The projected step up in the pace of easing in October is a more finely balanced decision (perhaps a 60% probability) whereas the probability of a larger easing in November looks much higher.
• The inflation outlook now looks set to settle close to 2% from Q3 2024 and gives the RBNZ more room to move more quickly back to neutral settings.
• We continue to see the terminal OCR at 3.75% - the cuts expected by Christmas merely bring the OCR closer to neutral more quickly.
• We don’t see a case for expansionary settings as there are tentative signs the economy is responding to easier conditions.
• We hope the RBNZ will be more circumspect on how quickly the OCR will change in 2025 as the OCR will be closer to neutral wherever defined.

RBNZ decision and associated communication.

We are changing our forecasts for the OCR and now expect the OCR to move more quickly to neutral than previously forecast. We now see two consecutive 50bp cuts in the OCR in the October and November meetings which will take the OCR to 4.25% at the end of 2024. This will leave the OCR just 50bps above our long-term neutral rate of 3.75%. The projected step up in the pace of easing in October is a more finely balanced decision (perhaps a 60% probability) whereas the probability of a larger easing in November looks much higher.

We anticipate a much slower, highly data dependent and uncertain path lower in the OCR in 2025. We have pencilled in 25bp cuts in each of the February and May Monetary Policy Statements taking the OCR to the longterm terminal rate of 3.75% by mid-2025.

A key driver behind this change in view has been the strong signs that the forward inflation profile will be much more benign in aggregate that we have seen since 2021. Our current forecast for annual inflation in Q3 is for an annual rate of 2.4% falling to 2.2% in Q4 this year. There may be some downside risks to those short-term forecasts. Yesterday’s QSBO confirmed a benign picture for short term pricing pressures and leaves us thinking that the RBNZ will not see either headline inflation or inflation expectations pressures as an impediment to bringing the OCR to neutral levels relatively quickly.

Another issue is that the global interest rate cycle has decisively turned in recent months. Central banks have been responding to a global inflation shock and have generally responded in similar ways. We now find the RBNZ fitting well into the group of advanced economy central banks who have already eased significantly, and look set to ease by a deal more by the end of Q1 2025. The RBNZ will need to reduce the degree of restriction relatively quickly to keep pace with its peers. And now with inflation projected to be close to target, and the economy operating a fair margin below its productive capacity, there is a less obvious case for maintaining restrictive settings.

As suggested in our recent Hawks and Doves note, reasonable arguments can be made for both maintaining a 25bp point pace of easing and accelerating the pace to more quickly return policy to a neutral stance. Given the latest information, on balance we find the dovish arguments more compelling. Domestically generated non-tradable inflation remains very high, and there has already been a significant easing in financial conditions that could see the economy rebound relatively quickly and frustrate the disinflation process. However, these concerns seem less important considering yesterday’s QSBO which confirms that near-term economic momentum likely remains in negative territory. While businesses in particular are more confident of better times next year, we have some distance to travel before those become front of mind from a policy standpoint.

Housing market data similarly show increased activity, but also depressed and still falling prices, indicating the housing market recovery is most likely a 2025 as opposed to 2024 story. The stronger outlook for the primary sector is another factor that seems likely to lend significant support to the economy. But again, this is most likely to be a consideration in 2025 given commodity prices and the terms of trade are recovering from weak levels and costs remain high in the primary sector.

In conclusion, we think the RBNZ MPC will be asking themselves “What are we waiting for?” when considering the case for maintaining the OCR at what are reasonably tight levels (even based on Westpac’s 3.75% neutral OCR, let alone the RBNZ’s 3.0% to 3.5% range of shorter run neutral OCR estimates). If the answer to that question is “not much” then the path ahead seems clear, especially given the RBNZ has a long gap between meetings from November 2024 to February 2025.

We had thought for a while that if a 50bp cut was to occur, then the November Monetary Policy Statement seemed the most compelling time given that gap in the calendar. And if the case for a 50bp cut in November is strong, then the case for that move to come in October also seems compelling. We don’t think there will be enough risk in the Q3 CPI or labour market reports coming mid October/early November to really shake the case for more substantial OCR adjustment before Christmas. If those risks materialise, then there is plenty of scope for the RBNZ to cut the OCR by less in November if need be.

The challenge now for the RBNZ will be to maintain firmer control on the market’s tendency to extrapolate OCR cutting expectations. Moving the OCR closer to neutral will help with that goal. But we also hope the RBNZ will provide a clearer set of parameters on how they would expect to operate policy in 2025. Monetary policy since 2019 has ended up being strongly procyclical – far too easy in 2019-21, necessitating very tight policy settings in 2023-24. We hope the RBNZ will avoid the temptation to cut rates too aggressively in 2025 unless well justified by the inflation and economic outlook. Making the point now that a faster removal of restriction implies less need to cut so deeply later would be a good way to try and deliver the “hawkish cut” that could stabilise output and employment without driving house prices further out of reach of the public.

Developments since the August MPS.

We think the following have been the key developments since the August MPS:

• Activity: GDP fell 0.2% in the June quarter, slightly less than the RBNZ had expected. Top-down indicators, such as those in the QSBO, suggest that GDP likely continued to contract in the September quarter, while early indicators for the December quarter point to subdued growth and thus a continued build-up of slack in the economy.
• Inflation indicators: Partial indicators from the monthly Selected Price Indexes for July and August suggest that Q3 CPI inflation is likely to print close to the RBNZ’s August MPS forecast of 2.3%y/y. However, survey indicators from the QSBO suggest some potential downside risk to our forecast.
• Labour market: While measures of filled jobs have stabilised in recent weeks, indicators continue to suggest that unemployment rate likely lifted in the September quarter, broadly in line with the RBNZ’s expectations. Surveys suggest that looser labour market conditions are placing downward pressure on labour cost inflation.
• Sentiment: Headline measures of business sentiment and expectations regarding activity a year ahead have improved sharply, especially those in the ANZ Business Outlook Survey. However, the improvement seen in survey measures of consumer confidence remains modest.
• Housing: House prices appear to have contracted further in the September quarter, and probably by more than the RBNZ had expected. Indicators and anecdotes point to some lift in activity of late, but house prices seem likely to remain subdued in the near-term given the overhang of inventory on the market.
• Commodity prices: There has been some further improvement in key commodity prices, notably in the dairy sector where Fonterra has recently raised its midpoint forecast for this season’s milk price to $9.00.
• Global growth: The most significant trading partner development has been in China, where continued weak data has recently prompted policymakers to announce a slew of stimulus measures. It’s uncertain whether the RBNZ will regard these measures as sufficient to allay concerns about a potential deflationary impulse from that economy.
• Financial conditions: Domestic wholesale interest rates have continued to move lower, in part reflecting the Fed’s 50bp policy easing last month. However, with the US dollar weakening, the NZ dollar TWI is trading more than 3% above the RBNZ’s assumption for the current quarter and beyond – if sustained, this will cause the RBNZ to revise down its near-term inflation forecasts.

• Gold reversed from support level 2625.00
• Likely to rise to resistance level 2685.00

Gold recently reversed up from the support level 2625.00 intersecting with the upper trendline of the daily up channel from July (acting as the support after it was broken in September).

The upward reversal from the support level 2625.00 continues the active short-term impulse wave 5 of the higher order impulse wave (5) from last year.

Given the overriding daily uptrend, Gold can be expected to rise further to the next resistance level 2685.00 (top of the previous impulse wave i).