Bank of Melbourne

Morning Report

Main Themes: Equities, commodities and US bond yields fell overnight, as financial markets became more risk averse. The AUD gave back all of yesterday’s jobs-inspired gains too.

Main Themes: Equities, commodities and US bond yields fell overnight, as financial markets became more risk averse. The AUD gave back all of yesterday’s jobs-inspired gains too.

Share Markets: Equities finished lower, as profit taking occurred after the previous session’s strong gains. Investors were also rattled by US President Trump’s criticism of the US Federal Reserve raising rates. Investors became concerned that Trump might wish to interfere with the Fed’s independence. The Dow Jones fell by 135 points (or -0.5%) and the S&P 500 index fell by 11 points (or -0.4%).

Interest Rates: Bond yields fell across the US curve overnight, spurred lower by remarks from US President Trump.

Foreign Exchange: The Australian dollar rose by nearly half of one US cent to a high of USD0.7441 in the wake of the sharper-than-expected rise in Australian jobs yesterday. However, the AUD was not able to retain these gains and depreciated to a low of 0.7323 overnight. This low is near the low point of its trading range over the past month.

Commodities: Commodities slumped overnight. Gold briefly dipped below US$1,220 an ounce, although WTI crude rebounded after dropping below US$68 a barrel.

Australia: Jobs jumped 50.9k in June, well above the range of consensus forecasts of 5.0-30.0k. It is also the biggest jump in jobs in seven months and driven by a strong rise of 41.2k in full-time jobs, which was also the largest gain in seven months.

The unemployment rate stayed steady at 5.4%, but that was because more people joined the labour force, preventing a fall in the jobless rate. The participation rate ticked up to 65.7% in June, from 65.6% in May.

It is an impressive set of numbers, except that when we look at the State-wide detail, much of the rise came from sharp job gains in NSW. Indeed, NSW accounted for over half of all jobs created in June, reflecting strong activity in the NSW economy.

Japan: The trade balance improved in June, from a deficit of ¥300.2 billion in May to a surplus of ¥66.2 billion. A jump in exports of 6.7% in June helped the improvement with imports rising by 2.5%. However, export gains have come down from the double-digit pace seen in much of 2017 and there’s the threat of tariffs on car and auto-part shipments to the US. Nevertheless, Japan is forging ahead with trade deals in other important markets and earlier this week signed a pact that will eliminate EU tariffs on vehicles from Japan.

United Kingdom: Retail sales unexpectedly fell by 0.5% in June and annual retail sales slowed from 4.1% in May to 2.9% in June. Warmer weather and the World Cup kept shoppers away. Despite the fall in June, retail sales rose by 2.1% in Q2, which is the strongest lift in a quarter since early 2014.

United States: The number of Americans claiming new unemployment benefits fell last week to the lowest level in 49 years. Initial jobless claims, a proxy for layoffs across the US, decreased by 8k to 207k in the week ended July 14.

The leading index rose by 0.5% in June, after a rise of 0.4% in May.

In other data, the of Federal Reserve Bank of Philadelphia’s regional factory survey showed current activity rose from 19.9 in June to 21.5 in July. However, the outlook gauge of business expectations fell 5.8 points to 29.0 this month, the lowest since March 2016 and the fourth straight decline. The rising trade tensions might be impacting the expectations gauge.

President Trump appeared to question having an independent US Federal Reserve in a CNBC interview by remarking he is “not thrilled” by rising interest rates and bemoaning the strength of the US dollar while China’s currency drops like a “rock”. The White House issued a statement afterwards saying the President respects the central bank's independence.


Today’s key data and events

NZ Net Migration Jun prev 5,090 (8:45am)

JN CPI Jun y/y exp 0.8% prev 0.7% (9:30am)

JN All Industry Activity Index May exp 0.0% prev 1.0% (2:30pm)

NZ Credit Card Spending Jun prev -1.6% (1pm)

EZ Current Account May prev €28.4bn (6pm)

US Chicago Fed Nat Activity Index Jun prev -0.15 (10:30pm)

G20 Meeting of Finance Ministers & Central Bankers (beginning 21 July, ending 23 July)


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.


Besa Deda, Chief Economist