- ECB and payrolls the obvious targets
- RBA hold rates, hint at weakening of AUD
- Services data due from UK (09.30) and US (15.00)
The scene is very much set for fireworks later in the week as the ECB meeting on Thursday and Friday’s payrolls announcement vie for investor attention. In the meantime, we are seeing currencies remain relatively quiet as traders wait for the last minute to fire their guns. Winners on the day yesterday were the AUD, GBP and EUR.
Aussie strengthened as investors celebrated a better than expected retail sales number for the month of September. Sales rose by 0.8% against a 0.4% expectation with house prices also rising by a decent 7.6% since this last time last year. All of this will have come together to stay the RBA’s hand overnight in their decision to not cut rates. We had forecast that a rate was possible, but given language in the attached statement, now look for the 25bps reduction in the base rate to take place in December.
The Reserve Bank of Australia called current AUD levels “uncomfortably high” and said that “a lower level of the exchange rate is likely to be needed to achieve balanced growth in the economy”. This followed a speech last week that hinted at the AUD being “materially lower” in the future. AUDUSD is down 0.3% at the time of writing.
GBP was supported by another good news point from the construction sector. The building boom continued in October with the index of UK construction hitting the highest since September 2007 and above the 50.0 level that marks expansion from contraction for the 6th consecutive month; a 15 month high.
Needless to say, it is the residential side of the market that is driving this growth onwards; improvement in business and consumer confidence alongside the government’s plans to help people onto the housing ladder are potent catalysts. In the near-term this should improve construction sector employment and output in the coming months, and we hope that civil engineering prospects as well as those of a commercial nature can mirror the gains seen in homebuilding. Output gains are hard to judge at the moment but are on course to remain healthy.
The details of the UK’s service sector are due at 09.30 with the market looking for a reading of 60.0, slightly down from last month’s 60.3.
Euro benefited from good PMIs as well. The Eurozone manufacturing PMI rose to 51.3 in October from September’s 51.1 reading, matching consensus estimates and the flash reading published earlier this month. The exporting economies of Spain and Greece were the best performers versus expectations whereas France and Italy were the laggards. The run of services numbers are released tomorrow.
US factory orders slightly missed expectations yesterday as both August’s and September’s numbers were released together. Orders fell 0.1% in August (vs. 0.3% estimate) and rose 1.7% in September (vs. 1.8%). The data series as a whole is always particularly volatile and adds little to the taper/no taper argument as it stands at the moment.
Much more important will be today’s ISM from non-manufacturing industries at 3pm. Once released we should be able to make a more accurate assessment of this Friday’s payrolls announcement, and lay out how the shutdown affected the jobs market. A hit to jobs is expected from the shutdown and debt ceiling battle and a subsequent rebound in November’s numbers; the magnitude of the bounce back is the single most important tapering argument.