The U.S. dollar rose with ten-year bond and equities on Tuesday after a consumer confidence survey highlighted increased optimism about the job market. The Conference Board’s consumer confidence index was 104.1 in September, surpassing estimates of a decline to 99, while the previous August reading was revised higher to 101.8 from 101.1. The same report however highlighted a lack of confidence around income and business conditions.
Elsewhere Markit preliminary surveys for services PMI (MoM Sep) exceeded expectations of 51.2 with an actual of 51.9 as the composite measure for the same period increased to 52.0 from 51.5 in August. The report highlighted that in September business activity showed the largest monthly rise since April while new business slowed. Employment growth reached a 3.5 year low. There were few signs of inflationary pressures as both input and output costs increases at slower levels than in August and the report notes that the slowdown in employment is expected to be consistent with around 120,000 rise in the September non-farm payrolls.
Both the S&P 500 & Nasdaq 100 gained +0.64% & +1.03% respectively with gains led by technology (+1.19%) & consumer cyclicals (+1.0%). Utilities & energy lagged behind, down -1.22% & -0.43% respectively. The U.S. dollar index strengthened +0.15% along with ten-year government debt for which yields declined 2.9 basis points to 1.5599% while the yield on two-year debt increased by a modest 0.4 basis points to 0.7461%.
Tuesday also provided the first of three debates between U.S. presidential candidates Hillary Clinton & Donald Trump leading up to the November 8th election. The first chart below shows the USDMXN strengthening +2.34% against the U.S. dollar, the currency has become a clear sentiment gauge for the election, with the Peso weakening as Trump has gained in recent polls. This reason behind this being his rhetoric, which suggests that his policies would negatively impact Mexico . The reaction in the Peso signals traders clearly view Hillary as the clear winner from the debate, while polls suggest the race is roughly neck and neck with Hillary holding onto a slim lead.
In Europe equity markets pared initial declines to finish modestly lower, the DAX down -0.31% while the Euro Stoxx 600 was up marginally by +0.06%. German Bund yields declined as investors continued to pile into safe havens on continued concerns over the health of the European banking sector, in particular Deutsche Bank (DE:DBKGn). Two-year debt yields fell 2.1 basis points to -0.698% as did ten-year yields down -2.9 basis points to -0.137% while the Euro declined -0.31%. In the U.K. the GBP/USD strengthened +0.39% and the FTSE100 was modestly lower, down just -0.15%.
Oil prices declined as Iranian oil minister Bijan Namdar Zanganeh said that it’s “not on our agenda” to reach an agreement at the informal talks in Algeria which conclude today. The rhetoric from this meeting so far seems to be laying some ground work for a potential deal in late-November, when OPEC meets formally, so it is likely we will continue to see much of the same headlines over the next two months as speculation around a potential deal mounts and officials attempt to talk prices higher. Crude Oil & Brent crude finished -2.18% & -2.24% lower shown on the second chart below, as did commodity prices in general with copper -1.10% lower, as was natural gas -0.33% and the Thomson Reuters CRB index -0.55%.
In Japan a weaker USD/JPY during the Asian session helped to provide some much needed relief for Japanese equities which reversed initial declines with both the Nikkei & Topix closing +.84% & +1.0% higher. The Yen eventually pared back the majority of losses to finish -0.13% weaker and this is likely to weigh on Japanese equity today with futures both the Nikkei & Topix trading lower. Japanese government bond yields were relatively unchanged with two-year debt yielding -0.266% and ten-year debt at -0.076%.
The AUD/USD finished +0.22% higher on Tuesday and the S&P/ASX 200 was -0.47% after initial declines up to -1.08%. Meanwhile the market looks set for a relatively flat open this morning with ASX SPI200 futures down just 6 points in overnight trading.
Data releases:
- German GfK Consumer Confidence Survey (MoM Sep) 4:00pm AEST
- U.S. Durable Goods Orders (MoM Aug) 10:30pm AEST
- Fed Chair Janet Yellen Testifies Before House Panel 12:00am AEST
- Fed’s Bullard Makes Introductory Remards on Community Banking 12:10am AEST
- U.S. Crude Oil Inventories (Sep 23) 12:30am AEST
- Fed’s Evans Speaks On Community Banking St. Louis 3:30am AEST
- Fed’s Mester Speaks on Economic Outlook and Policy 6:35am AEST
This article was written by James Woods - Global Investment Analyst, Rivkin Securities Pty Ltd.