The USD and the S&P 500
Two critical components to formulate a bearish US dollar view very much depend on the S&P 500 and the US 2-year yield performance, the latter which closely reflects the Fed rates outlook.
The odd equities markets reaction to the US non-manufacturing ISM release is fascinating for no other reason than the rebound. To this point, despite the bounce, in stocks, global growth barometers like Copper and Bonds are flashing red around the global growth slowdown.
This week's data suggests the US economy could be on the ropes after non-manufacturing ISM new orders slumped in September: down like a ton of bricks but surprisingly didn't hit like one.
However, this dreary foreshadowing suggests we're on the cusp of more pain to come, regardless of last night stock market rebound.
If you're bearish equities, you need to remain short US dollars primarily against the Yen , if you are very bearish on equities back up the truck on gold.
The Feds will need to cut rates and whether some members want to or not is another story, but they can't risk a total market collapse. Moreover, while this notion is buttressing risk assets like equities and Oil, the current state of weak macro and relatively stable equity markets can't exist much longer. However, for the time being, risk markets are “living on a prayer " as positive trade rhetoric, and dovish Fed expectations are expected to take the cake.
Comments from a number of Fed speakers, notably Clarida who said “The Fed will act as appropriate to sustain a low unemployment rate and solid growth and stable inflation" were seen as signalling another rate cut ahead of upcoming meetings and supported the equity ticker tape.
Aussie dollar and rates market
A busy day going nowhere as the magnetic attraction of the AUD/USD .6750 pivot suggests a good battle line is forming.
RBA speak, and data kept Aussie dollar traders hopping but strangely so at times. While most would have expected Aussie bills to rally after the retail sales miss the front end, Aussie bills traded down to a low of 99.33 from 99.39 in large volumes leaving traders to suspect this was a fat finger mistake, but so far no one is rushing to put their hand in the air as of yet.
If there are any banks left that have not brought forward RBA rate cut expectations, they will appear shortly after the dismally weaker retail and auto sales data.
The oil market is doing little more than tracking risk sentiment while traders are taking some chips off the table ahead of the critical NFP as there have been few buying impulses in Asia.
In these conditions, Oil remains very very vulnerable to weaker US macro data, but tempering the negative outlook is the X factor, positive trade rhetoric. The hope here is that the US and China can come to term on a rollback of tariffs.
The struggling USD should pose little threat for the gold market, but it will come down to tonight's payroll data, but I think the market will be better sellers of gold on rallies as there remains hope that the US and China can come to some rollback of tariffs or even and unthinkable outright deal. Wouldn’t that rock the foundations.
Asia Wrap
Asia trading mixed with HK selling off into close ahead of what may be further disruption this weekend and following news that a new anti-mask law is to be invoked which may inflame tensions further.
With the weaker US dollar, a wave of long unwinding pushed USDKRW 1% lower to 1195.2. In one fell swoop, the forwards gapped higher as US rates dropped and local bond carry attracts global investors.
Reserve Bank of India (RBI)
No surprises: The RBI cut its repo rate by 25bp to 5.15% and its reverse repo rate by 25bp to 4.90%, in line with expectations. The RBI revised its real GDP growth forecast for 2019/20 to 6.1% from 6.9%
The NDF market reaction has been rather tame.