Xe Morning Update - Your daily market wrap

Developments in markets for Monday 27 October......

• Snapshot: S&P500/Nasdaq?? yields??, crude oil??, gold??US dollar??
• AUD/USD:??gaps open, pops above recent range to touch 0.6560
• Risk on - market buoyed by constructive US x China weekend trade talks 
• Stage set for Trump and Xi to formalise trade deal later in the week
• All three major U.S. equity markets gap higher to mark fresh all-time highs
• Odds of additional RBA easing drop as Bullock emphasises caution required
• Day ahead: relatively quiet before an action packed week ramps up, WED.

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......

Risk-sensitive assets have performed well to start the new week, following positive news from weekend talks between the U.S. and China. Top trade officials from both sides reached agreements on several contentious issues, paving the way for Presidents Trump and Xi Jinping to finalize a deal later this week. The two sides reached a preliminary consensus on topics including export restriction controls, illegal fentanyl trafficking and shipping levies, which would avoid the U.S. imposing excessively high tariffs whilst alleviating supply-chain obstacles related to the export of rare earth minerals.  
 
Global equity markets have surged in anticipation of the trade deal being officially signed on Thursday, as Trump and Xi are set to meet on the sidelines of the APEC summit in South Korea. Logging impressive back-to-back intraday gains, the three major U.S. equity indices have ascended to fresh all-time highs, the S&P500 and Nasdaq over 3% and close to 5% higher, respectively, from last week's lows. Friday's softer-than-expected US CPI report has also contributed to the risk-on vibes, the market concluding 25-bps cuts at this week's and December's FOMC meetings are a lock.  
 
Gapping higher by circa 30-pips to start the new week, the Australian dollar has consolidated its bullish open throughout Monday's sessions, chopping sideways between 0.6530 and 0.6545 before catching a bid in the London morning as RBA Governor Michelle Bullock participated in a fireside chat at the Australian Business Economists annual dinner.  

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

Following a recent step-up in the unemployment rate in addition to higher-than-expected monthly inflation data, Bullock inferred caution is required in interpreting the data given monthly datasets can be volatile. Ahead of September quarter CPI data, released tomorrow, Bullock commented that the RBA board remains cautious and that given the tightening cycle was more restrained relative to other major central banks, the easing cycle should also be measured. 
 
Heading into the weekend, rates futures markets had assigned a 55% implied probability to a 25-bps cut on Melbourne Cup Day (04 NOV.)…..following Bullock's speech, pricing now sits below 20%. Trimmed mean inflation is projected to print at 2.7%, tomorrow, above the RBA's forecast of 2.6%. A stronger-than-expected print would likely block any additional monetary easing for the remainder of the year.
 
Bullock's added the Aussie's efforts in breaking above a 10-day range that had capped AUD/USD upside in a 0.6500/30 resistance zone. Marking intraday highs at 0.6560 and advancing decisively above the 100-day moving average, the Australian dollar is poised to benefit from positive trade developments in addition to favourable year-end seasonals. The next major upside hurdle for the Aussie dollar to clear: 66 US cents.
 
The day ahead is a quiet one on the global calendar, the ECB Bank Leding survey the sole scheduled tier 1 event. The action ramps up from Wednesday, a stacked week serving up 4 major central bank meetings - the Fed and Bank of Canada to cut, whilst the Bank of Japan and European Central bank are likely to maintain current policy settings. Despite the ongoing U.S. government shutdown, a raft of tier 1 data points are released for other developed economies. The first reading on U.S. GDP is scheduled for Thursday evening but unlikely to be released given the shutdown is likely to continue given Trump's Asia trip.
 
Expectations are for the positive vibes to prevail through Tuesday's sessions, supporting the Aussie to extend its ascent towards 66 US cents.
 
Have a productive day.
Stuart Talman (stuart.talman@xe.com)
Xe Corporate

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