Daily Markets

GCG Daily Market 03-11-2015

Tuesday 3 November 2015

Daily Market Recap

The ISM manufacturing index eased from 50.2 to 50.1 in October in line with forecasts. Orders rose but employment fell. Construction spending also rose 0.6% in line with forecasts in September. Purchasing manager surveys across the globe generally met expectations, supporting investor sentiment. Economic data largely met expectations, equities were favoured over bonds and sentiment continued to favour the US Federal Reserve lifting rates in December. US 2 year yields were up 2 points to 0.753% with US 10 year yields up by 4 points to 2.18%.

Expectations of a rate cut from the RBA has increased month on month as Global growth continues to deteriorate while domestically in Australia, the recent surprise drop in Q3 CPI had added to a rate cut sentiment. However, as noted by analysts at Westpac, "The surprise drop in the inflation measure is not unique and, in the past, the RBA has looked through a one off number. The motivation for cutting today would be a significant downward revision to the growth outlook."

While pricing for a rate cut is at 40% today, but expectations of a dovish statement are high if the Central Bank do not cut, so either way, the Aussie could come under pressure on a 25bp cut or simply a dovish statement and less bullishness on the economy with a wide door left open for a cut in the near future would destabilize the bulls safety nets.

Alternatively, any continued bullishness over the economy and a more neutral/less dovish statement would be supportive of the Aussie. The price of the Aussie may also be a topic mentioned in the statement that would be expected to also weigh on the currency if the RBA mention that they are ultimately continuing to expect and/or desire a weaker value. As of now, the Aussie is trading at around 0.7160 as we wait for the RBA announcement at 2:30pm AEST.