Daily Commentary BY THE CURVE TEAM –

Wild Ride Sets The Scene For Another Big Week

29th of October, 2018

It was another wild ride for markets with the increase in volatility sustained right into the close despite solid data out in the US. It is set to be another huge week with plenty of data scheduled to be release.

Volatility continue across most markets all the way into the close for the week with another night of wild moves. If the market expects that the Fed will come rushing to the rescue they could be very disappointed.

The data released Friday night supported the Fed’s outlook with another solid GDP print for Q3. The economy grew at an annualised rate of 3.5% against expectations of a 3.2% increase. The big positive was the contribution from consumption, which like in Australia, make up around two thirds of the economy.

Consumption in the US grew at an annualised rate of 4% in the quarter, the best performance in almost 4 years. The big question will be if it can be sustained going into the end of the year given the funk in markets and growing political uncertainty.

It seems it will take a sustained funk in equity markets for the Fed to change course with the Vice-Chair saying as much last week. Despite the pricing for the next Fed move slipping over the course of the week, the Fed is still expected to deliver a further three hikes by mid next year, assuming the data holds up.

On the data and it will be a huge week ahead of the RBA meeting next Tuesday. The highlight will be the Q3 CPI report from the ABS with the market currently expecting both headline and core inflation to print below the RBA’s 2-3% target.

There will be plenty of other data points worth keeping an eye on with building approvals out tomorrow, credit aggregates Wednesday, monthly house price update and trade balance Thursday and retail sales on Friday.

While there will be plenty to digest offshore the market will be focused first on the PCE inflation data in the US tonight then will eagerly await the nonfarm payrolls report on Friday night.

David Flanagan

Director - Interest Rate Markets