Intraday Market Thoughts

Oil Slumps, RBA, BoJ next

by Adam Button
Nov 1, 2016 1:35

November roars to life in the day ahead with the RBA and BOJ decision on deck. It comes after a sharp fall in oil to end October and the Fed decision looming for Tuesday. We also take a look at November seasonals. The short oil trade in the Premium Insights held since Sep 30 is now in a 105 pt gain. There are also 2 CAD-related trades. The Premium Video below covers the existing trades.

The market understandably ignored US economic data on Monday with so much on the upcoming calendar but the numbers were mixed. On the downside, the Chicago PMI slumped to 50.6 compared to 54.0 expected. On the positive side, personal spending rose 0.5% in Sept compared to 0.4% expected. PCE core inflation was in-line with estimates at 1.7% y/y.

Cable finished a dismal month with a 60 pip gain. Much of it came in a flurry ahead of the London close in what looked like month-end demand but news that Carney will stay until June 2019 was also positive. That's not as long as his full that expires in 2012 but it's longer than the 2018 rumored exit and it will allow him to guide central bank policy through the Brexit.

Oil was the big mover on the day as WTI crude fell 4% to wipe out the monthly gain. Diminishing chances of an OPEC deal as Iran and Iraq look for exemptions hurt prices along with news that OPEC pumped at record rates in October. November is the second-weakest month on the calendar over the past decade for oil and the past two years were especially poor with declines in excess of 10%.

Given that, it's no surprise that November is also a weak month for CAD. Other notable seasonals are that cable traditionally struggles in Nov and EUR/GBP tends to be strong. It's generally a good month for the US dollar and a middling month for stocks, although the S&P 500 has gained in four straight years.

Looking ahead, the RBA and BOJ decisions are both due in the hours ahead. Policy moves are a longshot with no chance of a BOJ change priced in and just a 5.3% likelihood of an RBA move. The BOJ is still rolling out its yield-curve control policy so we don't look for a surprise there but we are always cognizant of Kuroda's love for a surprise and that it's been exactly 2 years his Oct 31, 2014 shock QE announcement. The RBA is out at 0330 GMT and the BOJ in the usual 0230-0330 GMT range, likely at the front end if there are no surprises.

Act Exp Prev GMT
Chicago PMI
50.6 54.1 54.2 Oct 31 13:45
Final Manufacturing PMI [F]
53.3 53.2 Nov 01 13:45
ISM Manufacturing PMI
51.8 51.5 Nov 01 14:00

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