Main Themes: Sentiment was mostly positive overnight on hopes of easing trade tensions and strong US GDP data. The optimism from renegotiating NAFTA earlier in the week continued to linger, and there are hopes for a US-Canada trade deal.
Share Markets: US equities rose with tech stocks driving the rally – the Nasdaq jumped 1.0%. The S&P500 rose 0.6% and the Dow lifted 0.2%, sending the Nasdaq and S&P500 to record highs.
Interest Rates: Yields on US treasuries were little changed. US 10-year yields were steady at 2.88%, despite a briefly spiking on strong GDP data. Meanwhile, US 2-year yields edged 1 basis point higher to 2.68%. Financial markets are pricing in a 95% chance of a Fed rate hike in September.
Foreign Exchange: The improvement in risk appetite continued to be negative for the US dollar index, which has pulled back ever since a hitting a recent peak in mid-August. The euro was higher, but yen underperformed in the better risk environment. Meanwhile, GBP lifted to above $1.30 against the US dollar after the EU’s Brexit negotiator Barnier said the bloc would offer a close relationship with Britain. Despite the weaker US dollar index and positive sentiment, the Australian dollar fell yesterday after an announcement to lift mortgage rates.
Commodities: Oil prices rose after a drawdown in US stockpiles, and Iranian supply being curtailed due to sanctions. The weaker US dollar boosted gold prices, but a Chinese official’s comments warned of downside risks raised concerns over Chinese demand which weighed on copper prices.
Australia: No major data to report.
Europe: German GfK consumer confidence eased to 10.5 for September, from a reading of 10.6 in August. It was the second consecutive monthly decline.
Japan: Consumer confidence was in line with consensus expectations, slipping to 43.3 in August, from 43.5 in July.
United States: GDP growth in the June quarter was strong, coming in at 4.2% (annualised), an upward revision from 4.1% previously. It was the strongest in four years. It was also above the consensus estimate of 4.0%. The upgrade reflected weaker imports and stronger business investment, which more than offset a slight downgrade to consumer spending. It is still indicating an economy firing, with strength in both consumer and business sectors. Preliminary indicators are suggesting activity is cooling over the second half of the year, as businesses become more cautious with trade tensions, the housing market feeling the weight of higher mortgage rates and the impact of tax cuts fade for consumers. Nonetheless, the US economy appears on track for a particularly strong year of growth this year.
Pending home sales declined 0.7% in July, partially retracing a 1.0% increase in June, adding to signs of moderating activity in the housing market
Today’s key data and events
NZ Building Permits Jul prev -7.6% (8:45am)
JN Retail Sales Jul exp 0.2% prev 1.5% (9:50am)
AU Private Capital Expenditure Q2 exp 0.5% prev 0.4% (11:30am)
AU Building Approvals Jul exp -0.1% Prev 6.4% (11:30am)
UK Mortgage Approvals Jul exp 65.0k prev 65.6k (6:30pm)
EZ Economic Confidence Aug exp 111.9 prev 112.1 (7pm)
EZ Business Climate Indicator Aug exp 1.26 prev 1.29 (7pm)
EZ Consumer Confidence Aug exp -1.9 prev -1.9 (7pm)
EZ German CPI Aug exp 0.1% prev 0.3% (10pm)
US Personal Income Jul exp 0.4% prev 0.4% (10:30pm)
US Personal Spending Jul exp 0.4% prev 0.4%(10:30pm)
US PCE Core y/y Jul exp 2.0% prev 1.9% (10:30pm)
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