Morning Update – 26/10/16 – by Arjun Lakhanpal

Morning all.. Wall St closed down 0.38% as oil prices weighed on sentiment with fears Russia is unhappy with the production freeze deal. Also Saudi seems to be INCREASING production looking at yesterday’s production levels.. Crude inventories also rose and suggests we still have supply outstripping demand. Asia had a soft session but the Nikkei managed to close around unchanged. AUD the only currency to lock in gains overnight in G10 FX space after Australia Q3 CPI beat consensus on the headline by 0.2% q/q whilst the trimmed mean released in line. On the composition, fruit/vegetables and electricity were among the highest gaining components of the basket, while the biggest declines were seen in automotive fuel (-2.9%) and telecommunication equipment (-2.5%). AUDUSD briefly traded some pips through the 0.7700 level before retracing to settle up half a percent compared to yesterday’s LDN close; 0.7688 last. OIS swaps have adjusted the probability of a Nov rate cut to ~6% after CPI release vs ~15% going into the data. All other G10 FX traded remained within ~25bps despite their broad under-performance versus the USD. The pound rebounded strongly yesterday after Mark Carney hinted the Bank of England does not want the currency to dive too far, and called markets’ doom and gloom around Brexit “We are not a targetter of the exchange rate, we target inflation, but we are not indifferent to the level of the exchange rate. We have seen in recent weeks a fairly substantial shift in the exchange rate,” he said.” “It’s undoubtedly something we will take into account over the course of the next week as we sit down, update our forecast and make our policy decision,” he added, referring to next month’s meeting of the rate-setting monetary policy committee. Little to note elsewhere with respect to market drivers or key headlines. In broader asset classes, Dec WTI crude oil contract fell to a 3-week low of $49.30/brl, down over a percent, following API inventories report showing the largest build since April. In addition, bearish Russia OPEC envoy Vladimir Voronkov said output cuts were ‘not an option’ for Russia. Oil remains near the lows of the session.. This morning we get little in the way of data with French Consumer confidence, Swedish trade balance and Italian Retail sales. Good luck..