Overnight Headlines

*US futures in the green, closed at another record high Friday

*USD rebounds strongly after solid PCE data

*Japanese stocks jump after ruling LDP party secures election victory

*Australian bonds bounce erase much of Friday’s panicked rout

*RBA, FOMC, BoE meetings plus NFP this week

US equities saw another round of all-time highs Friday, despite disappointing 3Q earnings from some tech titans. Indices posted their best monthly performance of the year after a late surge near the close. Both the S&P500 and the Nasdaq notched around a 7% gain each on the month. The Nikkei is enjoying its biggest daily gain in four months after the LDP Kishida victory reduced political uncertainties. Japanese stocks hit a one-month high buoyed by a stable government and more fiscal stimulus.

USD rebounded off the 50-day SMA below 93.50 to hit more than two-week highs. Month-end flows are being blamed for some of the move. The release of the Fed’s preferred inflation measure showed prices continuing to rise faster than its 2% target. The DXY gained 0.5% on the week after two straight weekly losses, although the index was down on the month. 10-year US Treasury yields dropped the most in a week since early July. Dollar bulls now have eyes on 94.56, and EUR/USD lows at 1.1524.

Market Thoughts – Packed week full of risk events

It’s an exceptionally busy week to kick off the penultimate month of the year. We have central meetings in the US, UK, Norway and Australia. Major data releases are also on the calendar including today’s US ISM and new jobs reports from across the pond from the US and Canada on Friday.

A pretty confident tapering announcement is expected from the Fed on Wednesday. Mid-2022 is seen as the likely optimal end date with focus on the next steps for policy tightening. The RBA lost control of the short end of their bond market last week and it looks like it may have to shift policy. GBP has started to underperform as traders’ position for Thursday’s BoE meeting. Many expect the bank to struggle to deliver the hawkish pricing seen in GBP money markets.

Chart of the Day – AUD/USD hits 200-day SMA

It’s quite a rare event when the Aussie bond market gets headline billing. But the tumult last week has seen the market question if the RBA have now given up on their yield curve control policy. Current purchases are slated to run at A$4bn a week until mid-February 2022. Any changes to this or forward guidance will tell us much about the timing for bond buys to be discontinued.

The reaction in AUD has actually been relatively mild. The market has had an overstretched short position and with the size of the bond sell-off, the aussie is now widely undervalued. Prices hit a four-month high at the end of last week at 0.7555 and the 200-day SMA but have backed off since. Above here we have the down trendline from the February high just above 0.76. Support is at 0.7453.