Australian dollar stable as American consumers go boom

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DXY and CNY eased last night. EUR firmed:

AUD was mostly down:

Gold bogged:

Oil not:

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Base metals stalled:

Big miners didn’t:

EM stocks firmed:

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EM junk fell:

Treasuries were hosed:

Bunds too:

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Stocks were stable:

Westpac has the wrap:

Market Wrap

Global market sentiment: US bond yields extended multi-week gains in anticipation of the Fed interest rate decision which is out tomorrow. Equities and currencies were fairly stable.

Interest rates: The US 10yr treasury yield extended a month long rise from 3.09% to 3.11% – the highest since May. 2yr yields also rose, from 2.83% to 2.84% – a fresh high since 2008. Fed fund futures yields continued to price 100% chance of a hike on 26 Sep, while the chance of another hike in Dec is priced at 90%.

FX: The US dollar index is unchanged on the day. EUR remained rangebound, between 1.1740 and 1.1790. GBP was the day’s outperformer, rising from 1.3100 to 1.3194 on Brexit-related headlines. USD/JPY nudged higher, from 112.80 to 112.98 – a two-month high. AUD ranged between 0.7235 and 0.7265. NZD ranged between 0.6635 and 0.6660. AUD/NZD hardly budged, locked inside 1.0900-1.0910.

Economic Wrap

US surveys continue to impress. The Conference Board’s consumer confidence index jumped to an 18-year high of 138.4 in September from 134.7, well above expectations at 132.1. Both the present conditions and expectations gauges rose, and optimism about the labour market hit its highest levels since early 2001. Sentiment is surging across the US economy; on the heels of strong consumer confidence – the last ISM factory index hit 14-year highs in August while small business optimism hit 45-year highs. Tax cuts and a strong economy continue to overwhelm trade war threats to the outlook. The regional Richmond Fed manufacturing index rose to a higher than expected 29 in September, up from 24, signaling continued robust manufacturing conditions.

Event Risk

NZ: The trade balance for August is expected to fall from -$143m to -$925m, due to lower exports. ANZ business confidence will be watched closely, after August’s plunge to a 10-year low.

US: The Fed is universally expected to raise the fed funds rate 25bps to a mid-point of 2.125%. The focus will be on forward guidance in the FOMC’s dot plot and Powell’s press conference (note he is speaking again tomorrow). The dot plot median for the fed funds mid-point was last at: 2018 – 2.375%, 2019 – 3.125%, 2020 – 3.375%, longer run – 2.875%. Also of interest will be any discussion on the longer run size of the Fed’s balance sheet in relation to bank’s post-crisis regulatory demand for reserves.

Here’s the confidence number:

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The Trump boom is not over yet. It’s not the economy, stupid:

There are even some strikes appearing:

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More wages acceleration to come. Expect a modestly hawkish Fed tonight.


David Llewellyn-Smith is chief strategist at the MB Fund which is long US equities that will benefit from a falling Australian dollar so he is definitely talking his book. Below is the performance of the MB Fund since inception:

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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.