Bank of Melbourne

Morning Report

Better than expected US payrolls data boosted investor sentiment on Friday night. News that US President Trump will meet with North Korean leader Kim Jong Un was also well received by financial markets.
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Main Themes: Better than expected US payrolls data boosted investor sentiment on Friday night. News that US President Trump will meet with North Korean leader Kim Jong Un was also well received by financial markets.

Share Markets: The US stockmarket gained as strong jobs growth pointed to solid economic growth and after Trump agreed to meet with Kim Jon Un. The Dow and the Nasdaq rose 1.8% and the S&P 500 gained 1.7%.  

Interest Rates: US government bond yields rose, particularly at the long end, as the larger than expected increase in payrolls drove expectations of interest rate hikes. The yield on the US 10-year government bond increased from 2.85% to 2.89%. The yield on the US 2-year government bond rose from 2.25% to 2.26%.

Foreign Exchange: The US dollar index (weighted against a basket of currencies) finished down 0.1% from Friday morning.

Sterling gained versus the US dollar, with dollar weakness following the US payrolls data and after UK industrial production data indicated expansion in UK manufacturing activity.

The improvement in risk appetites boosted the Australian and New Zealand dollars against the US dollar. AUD/USD rose from a low of 0.7777 on Friday morning, to a high of 0.7858 earlier this morning.  The Australian dollar also strengthened against the New Zealand dollar with AUD/NZD hitting a high of 1.0789 this morning.

Commodities: Commodity prices gained on the lift in sentiment. The oil price rose US$1.90 to US$62.00 per barrel.

Australia: There were no major economic data releases domestically on Friday.

China: On Sunday, China’s Parliament voted to remove presidential term limits from its constitution. This gives President Xi Jinping the right to continue as president indefinitely.

Consumer price inflation accelerated sharply in February, as food prices rose for the first time in over a year on Lunar New Year holiday demand. The consumer price index increased 2.9% in February from a year earlier, compared with a 1.5% gain in January. Consumer inflation was the strongest since November 2013.

Food prices rose 4.4% from a year earlier, gaining ground for the first time since January 2017, after dropping 0.5% in January 2018. Food prices often strengthen in the month of the Lunar New Year holidays. This year, the holiday was in February versus January last year. The seasonal factor suggests the latest uptick in inflation could be short-lived.

Speaking at the National People's Congress on Monday, Premier Li Keqiang said that the government aims to keep inflation under about 3% this year.

Meanwhile, the producer price index (PPI) rose 3.7% in February from a year earlier, compared with 4.3% in January. China’s factory-gate inflation gauge has now softened for 4 months in a row.

Data from China early in the year should be treated with caution due to distortions caused by the timing of the week-long Lunar New Year holiday.

Europe: German industrial production was weaker than expected, falling by 0.1% in January, defying consensus expectations for an increase. For the year to January, industrial production rose by 5.5%, down from 6.2% in the year to December.

United Kingdom: Industrial production rose by 1.3% in January, retracing a decline of 1.3% in December. For the year to January, industrial production rose by 1.6%, up from flat growth in the year to December.

The trade deficit widened to £3.1bn in January, from a downwardly revised deficit of £2.5bn in December. The December deficit was previously reported at £4.9bn.

United States: US payrolls rose by 313k in February, easily beating consensus expectations for a 205k increase. It was the biggest increase in jobs in over 1½ years, with the construction sector adding its largest number of jobs since 2007. Payrolls for the previous two months were revised up by 54k.

The unemployment rate (which is from the separate household survey) held at 4.1% for February, missing consensus expectations for it to ease to 4.0%.

Average hourly earnings edged up 0.1% in January, which was below consensus expectations for a 0.2% increase. Annual growth in average hourly earnings eased to 2.6% in February, from 2.8% in January (which was previously reported as 2.9%).

Today’s key data and events

No key releases

 

Times are AEST. All data forecasts are m/m or q/q and seasonally adjusted unless otherwise specified. Forecasts for Australian data are our forecasts and for other countries they are consensus forecasts.