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Mixed sentiment to start the week

Published September 30, 2019

by Perry Mitchell

Determining what is in control of investors’ fears or appetite has proved to be difficult, although it can be pinned to a number of competing issues ranging from monetary policy being ramped to extremes, recession fears popping up in headlines regularly and now very clear political pressures like Brexit and a US impeachment inquiry.

Last week risk-off dominated the weekly close, following news suggesting that the US is considering putting limits on the United States investors’ portfolio flows into China and delisting Chinese companies from the US stock exchanges.

Brexit chaos continues, alongside headaches for UK PM Johnson.  During the weekend, the UK PM further hinted he is looking to bypass the law and that he has no intentions of asking for a delay in a televised interview, saying that the UK can still leave the Union on October 31. News agencies reported that the PM had been formally referred for potential investigation over misconduct in public office when he was mayor of London, over allegations about a conflict of interest.

With the beginning of a new month and final quarter of the year expect quite a few economic news releases this week, despite China will be spending most of the week off due to celebration of the Golden week. This Monday China will publish the official Manufacturing PMI for September, expected at 49.7 and the Non-manufacturing PMI seen at 54.2. The Caixin Manufacturing index for September will also be released seen at 50.2 from a previous 50.4.

Locally in Australia will see the release of Private Sector Credit but the most relevant event this week will be the RBA Cash Rate decision. The Aussie Dollar will look to October’s monetary policy decision from the Reserve Bank of Australia this Tuesday afternoon. The chances of an interest rate cut judged to have risen considerably in the past couple weeks. Markets have priced in a 74% chance that the RBA will cut their cash rate to 0.75%.

The Aussie Dollar has opened around 0.6760 this Monday morning – a second consecutive weekly decline. Having set a 3 week low of 0.6736, amid broad dollar strength on the back of risk aversion despite most of this being triggered by political turmoil. Stocks suffered from the flight to safety whilst commodities ended the week with loses, all of which further dented demand for the Aussie. Risks to the Aussie are tilted to the downside this week with global risk appetite and the RBA being key factors.