02-NOV-2018, FRIDAY

1) Asian Stocks Rise As Trade Hopes Endure, US Payrolls Up Next
2) Gold Prices May Turn Lower as US Dollar Rebounds on Jobs Data
3) RBNZ May Sink NZD Prices as 2018 US Midterms Offer it Uncertainty

1) Asian Stocks Rise As Trade Hopes Endure, US Payrolls Up Next

Most Asian stock markets managed gains on Friday as investors dared to hope that there could be some good news on trade as November proceeds. Wall Street has also logged impressive gains this week, providing a conducive backdrop for equity elsewhere. There is a very long way to go in the trade story, of course, given the scale of dispute between the US and many countries that run persistent trade surpluses with it, notably China. However, US President Donald Trump alluded to what he called a ‘very good conversation’ with his Chinese counterpart Xi Jinping on the subject in a Thursday Tweet, and hopes seem to have picked up for their meeting at the Group of 20 leading economies’ summit in Argentine later this month.

Sure enough, the Nikkei 225 added 0.6%, the Hang Seng was up by 2.4% and Shanghai added 1.2%. The Kospi also gained with the ASX 200 in Sydney the most notable regional loser. It shed 0.5% as local energy and financial stocks wilted. The Australian benchmark has made up some ground back toward the psychologically crucial 6,000 area which was abandoned in early October. However, the most recent rally is showing clear signs of exhaustion and the index looks to be headed down again, with the year’s lows uncomfortably close for the bulls.

The most prominent remaining feature on Friday’s data schedule is of course the official US labor market release. October’s non-farm payrolls are expected to rise by 193,000, which would be a lot better than September’s lackluster 134,000 rise. Canada’s jobless numbers are coming up too, as are various Purchasing Managers Indexes from around Europe. Swiss retail sales figures are coming up too.

2) Gold Prices May Turn Lower as US Dollar Rebounds on Jobs Data

Gold prices soared – posting the largest daily increase in three weeks – as a plunging US Dollar bolstered the appeal of anti-fiat assets. The Greenback suffered from cross-currency flows. A somewhat confounding drop in Treasury yields and parallel flattening of the 2019 rate hike outlook priced into Fed Funds futures compounded the US unit’s pain. The dovish shift played out against the backdrop of firming risk appetite, which might have been expected to produce the polar opposite result. The move was promptly erased in Asia Pacific trade however, hinting it may have reflected one-off repositioning.

Looking ahead, all eyes are on the October’s US labor-market data. A pickup in payrolls growth is expected to produce a 200k increase – bringing job creation broadly back to the trend average – while the unemployment rate remains at the 49-year low of 3.7 percent. Perhaps most eye-catching, the pace of wage inflation is expected to hit the highest level in 9 years at 3.1 percent. US economic news-flow has cautiously improved relative to forecasts over the past two months, opening the door for an even rosier set of outcomes. To the extent that such results bolster conviction in a hawkish Fed outlook, they may offer a lifeline to the US Dollar and weigh on Gold.

Gold prices bounced to retest resistance in the 1235.24-41.64 area. A break upward confirmed on a daily closing basis sees the next upside barrier in the 1260.80-66.44 zone. Alternatively, a turn back lower that pierces support the 1211.05-14.30 zone exposes the 1180.86-87.83 band.

3) RBNZ May Sink NZD Prices as 2018 US Midterms Offer it Uncertainty

The pro-risk New Zealand Dollar was on pace last week to mark its best performance against the US Dollar in almost two months. This coming week holds a level of uncertainty for NZD prices given multiple critical event risks. Starting with domestic concerns, the New Zealand Dollar awaits both a jobs report and an RBNZ rate decision. The former is due to cross the wires first and may even surprise to the upside. Such has been the case for New Zealand economic data as of late, suggesting economists are under pricing the health and vigor of the economy.

However, overnight index swaps are not pricing in one rate hike from the RBNZ in 2019, suggesting that New Zealand’s jobs report may have limited implications for NZD. Such was also the same scenario for third quarter CPI data which crossed the wires better-than-expected, reducing what was dovish monetary policy bets at the time. That led to a dramatic appreciation in the Kiwi Dollar however, and it may repeat itself.

Since then, the central bank has been relatively quiet and has given no clear signs that the stronger third quarter inflation report might tilt their forward guidance into favoring a rate hike. At the moment, policymakers have left the door open to a cut. Should the status quo remain the case, we may see a selloff in the New Zealand Dollar as bets on the CPI data (and possibly jobs too) unwind and vice versa.

For broader risk trends, the question remains whether or not market mood can continue improving as the Fed is on pace to keep raising interest rates. In the bigger picture, that seems fanciful. But for now sentiment, and thus the New Zealand Dollar, await the outcome of the US 2018 midterms. Polls are anticipating for Democrats to gain control of the House of Representatives while Republicans maintain a narrow majority in the Senate.

As such, the markets are probably pricing that in and an outcome in line with expectations may not do much to surprise traders. Thus the unexpected outcome would be Republicans holding both houses or Democrats gaining control of them. The former allows for US President Donald Trump to pursue his trade agenda without much interruption and vice versa. Given these uncertainties, the NZD outlook will have to be neutral.