Main Themes: Sentiment in the share market was positive, although bond yields were little changed. The US dollar index continued its resurgence. Crude oil prices jumped to their highest since 2014 ahead of a key decision which could see sanctions reimposed on Iran.
Share Markets: US shares lifted, supported by M&A activity. Rising oil prices were supportive of energy stocks. The Dow and S&P500 both rose 0.4%. Tech stocks were also firmer, pushing up the Nasdaq up 0.8%.
Interest Rates: Yields were little changed overnight. US 2-year yields held at 2.50%, and the 10-year yield was steady at 2.95%. Fed speakers did little to alter the outlook for the Federal Reserve. Investors also appeared to brush off the potential impact of higher oil prices on inflation. Markets continue to fully price in a Fed rate hike for June.
Foreign Exchange: The US dollar index continued to grind higher. The euro was likely weighed down by weak German factory data overnight. The Australian dollar dipped below 75 US cents overnight, but then recovered to trade at close to 75.1 US cents this morning.
Commodities: Oil prices rose to their highest since late 2014, boosted by US-Iran tensions and a dispute in Venezuela potentially disrupting supply. Trump tweeted that he would announce a decision whether to withdraw from the Iran nuclear deal on Tuesday. Gold prices were weighed down by the resurgence in the US dollar.
Australia: NAB business conditions jumped to 21 in April, an equal record high since this survey began in 1997. It was up from a reading of 15 in March and well above the long term average. The sub-components profitability, sales and employment all increased in April.
Business confidence rose to 10 in April, from a reading of 8 in March.
ANZ job ads fell 0.2% in April, after slipping 0.1% in March. It was the third consecutive monthly decline in job ads. Annual growth in job ads eased to 8.6% in April, from 11.5% in March.
The AiG performance of construction index eased to 55.4 in April, from 57.2 in March. The reading remains well above 50 signalling ongoing expansion in construction activity. The employment sub-component strengthened in April.
Europe: German factory orders slumped 0.9% in March, versus an expectation for a 0.5% gain. It was the third consecutive monthly fall, and suggest a contraction in activity over the March quarter.
United States: Consumer credit rose by a softer-than-expected $11.6bn in March, after a $13.6bn increase in February.
Atlanta Federal Reserve president Bostic highlighted that there was upward pressure on inflation but that “some overshoot” of inflation was fine. Bostic’s expectation was for two additional rate increases this year.
Newly-appointed Richmond Fed president Barkin avoided specifying how many rate hikes he expected this year, but said “we probably ought to go to neutral”, which was estimated by the Federal Reserve to be at 2.9%. Barkin noted the nervousness among businesses about the economic outlook. Both Bostic and Barkin are voting members on the FOMC this year.
Today’s key data and events
AU Retail Sales (11:30am)
Values Mar exp 0.1% prev 0.6%
Volumes Q1 exp 1.2% prev 0.9%
CH Trade Balance Apr exp US$27.50bn prev -$4.98bn
Exports y/y exp 7.0% prev -2.7%
Imports y/y exp 16.0% prev 14.4%
EZ German Industrial Production Mar exp 0.8% prev -1.6% (4pm)
AU Federal Budget 2018-19 (7:30pm)
Underlying Cash Balance:
17/18 exp -$17bn
18/19 exp -$13bn
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.
Janu Chan, Senior Economist