Bank of Melbourne

Morning Report

Main Themes: Conciliatory comments on trade from both China President Xi and US President Trump eased concerns about a potential trade war, boosting investor sentiment. The US stockmarket strengthened, US bond yields rose and commodity prices lifted. The US dollar finished the session lower, losing ground against the Euro following comments from ECB’s Nowotny.
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Main Themes: Conciliatory comments on trade from both China President Xi and US President Trump eased concerns about a potential trade war, boosting investor sentiment. The US stockmarket strengthened, US bond yields rose and commodity prices lifted. The US dollar finished the session lower, losing ground against the Euro following comments from ECB’s Nowotny.

Share Markets: US equities gained on conciliatory comments on trade from the Chinese and US Presidents. The Dow rose 1.8%, the S&P 500 gained 1.7% and the Nasdaq lifted 2.1%.

Interest Rates: US bond yields rose as the lift in risk appetites dimmed demand for safe haven US government debt. The yield on the 10-year bond yield rose from 2.78% to 2.80%. The yield on the 2-year government bond rose from 2.28% to 2.31%.

Australian government bond yields rose yesterday and edged higher overnight (implied by futures) reflecting diminished risk aversion.

Foreign Exchange: The US dollar index (weighted against a basket of currencies) fell 0.2% from Tuesday morning. The Euro strengthened on comments from European Central Bank (ECB) policymaker Nowotny that the ECB could raise its deposit rate to begin the process of rate hikes (see detail below).

Revived risk appetites boosted the Australian and New Zealand dollars. AUD/USD rose to a near three-week high of 0.7768 and is trading around 0.7764 at the time of writing. With the New Zealand dollar also gaining ground against the US dollar, AUD/NZD is little changed from yesterday morning at around 1.0544.

Commodities: Commodity prices benefited from an easing in concerns about a potential trade war and a softer US dollar. Unofficial reports that Saudi Arabia is targeting an oil price of US$80 per barrel boosted the oil price. The West Texas Intermediate oil price jumped US$2.10 to US$65.50 per barrel.

Australia: The NAB survey saw a sharp drop in confidence and conditions. The confidence index edged down from 9 in March to 7 in February. Meanwhile, the conditions index fell from 21 to 14. While both indices declined significantly, both are sitting above their long-run averages. Falling confidence and conditions comes as no surprise given recent volatility in financial markets and the potential trade war between the US and China.    

China: In a speech yesterday, Chinese President Xi pledged to open the economy further through lowing import tariffs on products including cars and to take measures to widen market access for foreign investors.

US President Trump responded to President Xi’s comments saying he was “very thankful” for the comments on tariffs and his “enlightenment on intellectual property and technology transfers.”

Europe: ECB policymaker Nowotny said the ECB could raise its deposit rate first, before increasing its main interest rate. He said “I would have no problem with moving from -0.4 percent to -0.2 percent as a first step and then, as a second step, include the policy rate.” Although he indicated it was too early to say when this could happen.

United States: Producer prices rose by 0.3% in March, surpassing consensus expectations for a 0.1% rise. The increase was driven by rising prices for healthcare and food. Excluding food and energy, core producer prices increased 0.3% in March. For the year to March, producer prices rose 3.0% up from 2.8% in the year to February. Annual core producer price growth lifted to 2.7% in March, from 2.5% in February.

Wholesale inventories rose by 1.0% for the final reading for February. This followed a 1.0% increase in January.

NFIB small business optimism fell to 104.7 in March, from a record-matching 45-year high 107.6 in February. The decline was larger than expected and took the index to a five-month low, although it remains close to a record high. Recent concerns about a possible trade war have likely impacted business confidence.

 

Today’s key data and events

 

JN PPI Mar y/y prev 2.5% (9:50am)

AU WBC-MI Consumer Confidence Apr prev 103.0 (10:30am)

AU RBA Governor Lowe Speaks (1:45am)

CH PPI Mar y/y exp 3.3% prev 3.7% (11:30am)

CH CPI Mar y/y exp 2.6% prev 2.9% (11:30am)

UK Trade Feb exp -£2.6bn prev -£3.1bn (6:30pm)

UK Industrial Prod’n Feb exp 0.4% prev 1.3% (6.30pm)

US CPI Mar y/y exp 2.4% prev 2.2% (10:30pm)

US Core CPI Mar y/y exp 2.1% prev 1.8% (10:30pm)

US FOMC Meeting Minutes Mar 21 (4am)

  

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.

 

Jo Horton, Senior Economist
Ph:02-8253-6696