Xe Morning Update - Your daily market wrap

Developments in markets for Monday 20 October......

• Snapshot: S&P500/Nasdaq?? yields??, crude oil??, gold??US dollar??
• AUD/USD:??rebound extends beyond 0.6500, highs marked through 0.6520
• Risk sentiment improves on fading credit concerns, positive trade headlines
• NZ 3Q CPI: expected inflation step-up confirmed, CPI rises from 2.7% to 3.0%
• China activity data: GDP falls from 5.2% to 4.8%; retail sales lower for 4th month
• Day ahead: subdued price action expected given absence of key event risk 

Each morning we bring you up to speed with the latest market news, including the events and themes that are impacting currencies and other related asset classes......

Improving risk sentiment which materialised through Friday's sessions has carried through to the commencement of the new week, the S&P500 shaking off recent regional banking credit concerns to resume its ascent, looking set to re-test all-time highs. Last week two regional U.S. banks hit the headlines regarding bad loans written to the same private real estate investor. The cases caused a significant pullback for the broader regional banking sector amidst concerns they're symptoms of a systemic underwriting breakdown during the period of historically low interest rates and easy money.
 
Price action over the past two trading days suggests the market has concluded these are isolated incidents, the S&P500 rebounding close to 3% from last week's lows.
 
More positive leaning trade related news flow is also contributing to the risk-on vibes as expectations rise that Trump and Xi will reach some form of a trade deal at a meeting likely to take place on the sidelines of the Asia-Pacific Economic Cooperation summit in South Korea which commences on the final day of the month. Should a deal be struck, risk sensitive assets, including the New Zealand dollar, would benefit.
 
Commencing the new week in the 0.6480's, the Australian dollar was a top three G10 performer through Monday's sessions, an intraday gain of around a third-of a percent lifted the Aussie beyond 65 US cents. A modest pullback of less than 10-pips from Monday's peak has AUD/USD commencing this morning's Asian session above 0.6510.
 
Over the past half-dozen trading days, the Aussie has faced resistance in the 0.6520's on three occasions, following a steep drop from beyond 0.6570 on October 10. However, an evolving double bottom around 0.6540 formed via the 14 and 17 October intraday lows indicates a measured but growing bullish momentum. This suggests AUD/USD may imminently break through key resistance around 0.6530 to then reclaim territory above 0.6550. Failure to maintain price action above 0.6500 would shift the near-term technical tone back to negative.

US equity markets as at time of morning update release and may not represent session closing prices  

In data news to start the week, September quarter CPI was released across the Tasman, headline consumer prices for the NZ economy rising 1% quarter-on-quarter bringing the annualised rate to 3%, up from the prior reading of 2.7% and in-line with consensus forecasts. The result was also in-line with the RBNZ's forecasts from the August MPS. In October, the RBNZ had confirmed it expected inflation to rise through 3Q on the back of higher tradeables inflation which is largely determined by global factors. Therefore, the data will not alter the path for the OCR, the RBNZ to cut again in November to yield a year-end OCR of 2.25%.
 
Having peaked at 1.1445 on 08 October, a three-year high, AUD/NZD retraced, marking last week's lows a few pips south of 1.1280. A two day-rebound has the antipodean cross trading back in the mid 1.1300's.
 
Also released Monday, China activity data confirmed weaker domestic demand and slowing growth, the world's largest economy growing at an annualised 4.8%, down from the prior reading of 5.2%. Retail sales fell as the impact from China's trade in programme - a government stimulus measure offering subsidies to consumers who trade in old household products for new, fades. Retail sales slowed from 3.4% in August to 3.0%, marking the fourth month of weaker household spending. The narrative sustains: China's consumers remain cautious given ongoing concerns with the property market.
 
This week, the Fourth Plenum meetings are taking place, with Xi Jinping and other top Communist Party leaders gathering in Beijing to outline their goals for the next five years. While the detailed five-year plan for 2026-2030 will likely be unveiled at the National People's Congress in March, China is currently grappling with challenges from the ongoing trade war that has escalated since Trump took office, as well as persistent domestic issues that are hindering growth. Key economic priorities include boosting consumer spending, encouraging business investment, and reducing excess capacity in various industries.
 
The ruling Communist Party must demonstrate its commitment to achieving ambitious goals that will enhance the quality of life for its citizens. Failure to do so could result in significant civil unrest.
 
The day ahead presents as a subdued affair, unless trade related news flow proves a factor. CPI for Cananda is the sole tier 1 data release, core inflation projected to remain around 3%.
 
Attention will be focused on 0.6530 resistance to confirm if the Aussie can sustain positive momentum.
 
Have a good day.
Stuart Talman (stuart.talman@xe.com)
Xe Corporate

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