Daily Commentary BY THE CURVE TEAM –

Markets in a Funk Ahead of Key Data

9th of October, 2018

The market funk emanating from China as their markets reopened to the RRR cut after being closed for a week threatened to go global overnight.

It seems markets saw the RRR cut from the PBoC as a sign of weakness with heavy selling of Chinese equities and a flight of foreign capital as markets reopened after a week hiatus. The carnage spread to other markets with the local ASX hit along with the AUD.

Europe was also weaker with Italy still causing a stir when it comes to its budget deficit and petulance towards the Eurozone. Activity in Europe’s bond markets, or lack there of, didn’t help either with the 5th corporate bond auction pulled in the last week overnight.

It is hard to gauge the full impact of the funk as physical markets in the US were closed for the Columbus Day holiday. Equity futures did initially succumb to the weak lead from Asia and Europe before a late bounce saw the losses erased. The AUD even managed to catch a bid and closed higher on the day.

The focus today will turn to the all important monthly business survey for September due out this morning. Confidence has been slipping and conditions are off their highs making the latest read important. As long as the employment index holds up, all should be well for the near term.

David Flanagan

Director - Interest Rate Markets