China Escalates Market Fears
AUD
The AUD opens down against all majors, after global risk sentiment soured due to Chinese sanctions. Yesterday, China made the decision to sanction five U.S. subsidiaries of South Korean shipbuilder Hanwha Ocean, representing a significant escalation in the economic conflict between Washington and Beijing. Asian equities were therefore down on the day, with the Nikkei -2.6%, Hang Seng -1.7% and Shenzhen -1.2%. Locally, the ASX 200 gained +0.2%, with materials and energy leading the way to trade at +2.3% and +1.4% respectively. Commodities were mixed with biggest movers being Crude Oil -1.3% and Natural Gas +1.3%. Yesterday saw the RBA’s meeting minutes released, which further strengthened their stance of taking a cautious approach to monetary policy. Chinese inflation data is set to be released today. Markets expect the CPI to decline by 0.2% YoY in September, following a 0.4% YoY drop in August. Tomorrow will have Aussie Employment Change and Unemployment Rate, as well as RBA Gov Bullock speaking in the morning.
USD
The AUDUSD opens at 0.6488, falling to 7-week lows at 0.6440 before recovering overnight to current levels. Wall Street closed slightly higher, with the Dow Jones trading +0.9%, the S&P 500 +0.3%, and the Nasdaq -0.2%. Federal Reserve Chair Jerome Powell stated that the outlook for both employment and inflation hasn't changed much since the central bank's policy meeting in September. Currently, concerns about the American job market are widely interpreted as opening the door to the possibility of another interest rate cut at the Fed's upcoming meeting on October 28-29, even as Powell maintained that all monetary policy decisions will continue to be set on a flexible, meeting-by-meeting basis. As the US Government remains shutdown, all government data releases are tentative as to when they will be released.
EUR
The AUDEUR opens lower at 0.5591, mainly due to global risk sentiment and Aussie Dollar weakness. Yesterday the ZEW Economic Sentiment was released higher than expected, indicating a stronger German economic future. However, European equities were down with DAX -0.6% and CAC -0.2%. Tonight will have Industrial Production m/m, which is forecasted at -1.6%. Minor economic data pieces to be released for the rest of the week.
GBP
The AUDGBP opens lower at 0.4871, recovering from yesterday lows of 0.4842 due to poor British unemployment figures. The key development is that private sector wage growth, a persistent concern for the Bank regarding inflation, is finally showing signs of a more rapid decline. Pay growth among companies has fallen to 4.4% annually, down from 6% at the beginning of the year. Crucially, the three-month annualized rate is now at a much lower 2.4%, indicating a strong probability that the annual rate will drop below 4% by November. This decline is typically factored into the Bank of England's forecasts, and seeing this materialization of lower-than-expected wage pressure will help alleviate the Bank's concerns about the upside risks to inflation. The FSTE was also up slightly at +0.1%. Looking ahead, we have GDP m/m expected at 0.1% tomorrow.
NZD
The AUDNZD opens lower at 1.1354, falling to lows of 1.1323 before retracing to current levels. New Zealand will not have any economic data released until their CPI q/q is released next week