Xe Morning Update - Your daily market wrap

Developments in markets for Wednesday 05 November......

• Snapshot: S&P500/Nasdaq?? yields??, crude oil??, gold??US dollar??
• AUD/USD:??rebound short-lived, offered from near 0.6520 to 0.6460's
• Risk mood darkens as market places extra weighting on second tier jobs data
• Bank of England delivers on-hold decision in tight vote; DEC. cut in play
• Day ahead: no major data releases, expectations for further downside for risk assets

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 sentiment has flipped back to negative as the market continues to apply increased weighting to tier 2, private data points amidst the dearth of official government agency economic data. Challenger Job Cuts released by executive outplacement firm Challenger, Gray & Christmas announced 153K jobs cut in October, representing the highest total for the month since 2003, and close to triple the previous month's reading. The notable increase was attributed to AI adoption, soft consumer spending and rising costs. Those workers seeking jobs are finding it increasingly challenging to secure a new role.
 
Whilst the Challenger data was not the outright catalyst for Thursday's risk off flows, it adds to concern that the ongoing cooling of the labour market will lead to a pronounced downturn, in turn, throwing into question the sustainability of richly valued equity markets. Under pressure from the opening bell, the three major U.S. equity markets extend their pullback from recent all-time highs, the Nasdaq leading the descent, falling close to one-and-a-half percent. From its all-time high marked on 29 October the tech-heavy index dropped over 4% amidst doubts the AI CAPEX boom can sustain the current trajectory.
 
The risk sensitive antipodeans occupy the bottom two spots on the G10 leaderboard, both falling around half-a-percent. Having located support around 0.6460 earlier in the week, the Australian dollar appeared to be basing through Thursday's Asian and European sessions, consolidating its rebound in a tight 0.6500/20 range. However sellers emerged in the New York morning, AUD/USD dropping over 50-pips to mark intraday lows in the 0.6460's. Losses have been pared through the second hold of U.S. trade, the Aussie improving back through 0.6480.
 
From mid-October several prominent intraday lows have been marked in a 0.6440/60 support zone. The 200-day moving average resides in the 0.6450's. A beak below would mark a major victory for AUD bears, sending AUD/USD to test 4-month lows around 0.6420.

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

In central bank news, the Bank of England has aligned with the consensus, opting to keep the policy rate on hold. The key takeaways: 
 

• BoE on hold, maintains bank rate at 4.00%
• Vote count tight: 5-4
• Inflation risks more balanced

 
Like the Fed, the BoE is divided, the 5 hawks that voted for no change remain uncomfortable with persistently high inflation whilst the doves now believe that downside risks outweigh the upside. Little to no forward guidance was provided but given the accompanying statement recorded the committee's view that inflation risks are more balanced, the bar has been lowered to a December cut.
 
Two additional CPI readings are released prior to the final meeting of the year - 18 December. Should prices data continue to print lower, the BoE will cut in December. Layer in the upcoming UK budget announcement on 26 November, which is expected to deliver hefty tax hikes, the bank rate is likely to end the year at 3.75%. The market prices in circa 18-bps of easing before year-end.
 
The pound strengthened following the no-change decision as market pricing had assigned a circa 30% implied probability to a cut, GBP/USD the second strongest performer amongst the G10 cohort. The Aussie has dropped around one percent against the pound, AUD/GBP falling through 0.4930.   
 
To the day ahead, it's a quiet calendar given the Bureau of Labor Statistics October employment report will not be released. Canadian jobs data and Michigan Consumer Sentiment are the tier 1 data releases.
 
The Aussie is likely to remain pressured into the weeks close, ending a gloomy week in the mid-0.6400's.
Stuart Talman (stuart.talman@xe.com)
Xe Corporate

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