Bank of Melbourne

Morning Report

Main Themes: Investors remained risk averse, as trade tensions continued to cause concerns about the outlook.


Main Themes: Investors remained risk averse, as trade tensions continued to cause concerns about the outlook.

Share Markets: US share markets ended the week lower for the second consecutive week, as equities were weighed down by pessimism over US-China trade tensions. For the Friday session, the Dow Jones closed 99 points lower (or -0.4%) and the S&P 500 index ended 17 points weaker (or -0.6%).

Interest Rates: The US 10-year treasury yield ranged sideways between 2.36% and 2.41% and the 2-year yield between 2.16% and 2.21%. At the close, these yields finished little changed.

The chance of a Federal Reserve rate cut by December, implied by Fed fund futures, remained at 120%. September is priced at 60%.

Foreign Exchange: The US dollar index was slightly firmer in Friday night’s trading session. AUD/USD fell from 0.6890 to a fresh three-year low of 0.6865 in Friday trading, but it has opened Monday morning at a higher rate, now trading around the 0.6900 handle.

Commodities: OPEC met on Sunday. Saudi Arabia and other key producers in OPEC signalled their intention to keep oil supplies constrained for the rest of the year, while pledging to prevent any genuine shortages. It was less clear how far Russia, their main partner in the wider OPEC producers’ coalition, shared that view.

Australia: On Saturday, the Liberal party was unexpectedly re-elected to government. Polls had suggested a win to Labor. Counting is still continuing. With 76% of the votes counted, the coalition has 75 seats, Labour 65, minor parties 6, with 5 uncertain in the 151-seat lower house.

Japan: The tertiary industry index fell 0.4% in March, after a fall of 0.6% in the previous month.

New Zealand: BusinessNZ manufacturing PMI rose from 52.0 in March to 53.0 in April. Activity remains above 50.0, suggesting an expansion of manufacturing activity in the period ahead.

Producer prices at the output level fell 0.5% in Q1 and input prices also fell, by 0.9% in the quarter. It suggests wholesale inflationary pressures remain under pressure.

United Kingdom: Prime Minister Theresa May said she'll make a "bold" new offer to members of Parliament in a bid to pass her Brexit deal on the fourth attempt. May promised improvements on workers' rights in her new offering. Labour's Jeremy Corbyn went further than before in his support for a second referendum; Corbyn said the public should get a confirmatory vote on his party's own Brexit deal, not just May's.

Europe: The final reading for core consumer price inflation in the Eurozone region for April was a surprise lift of 1.3% year-on-year, from the initial reading of 1.2% year-on-year. This outcome matches April 2017’s spike and is the firmest pace since mid 2015. Headline consumer prices were unchanged in April at 1.7% annual growth.

United States: Consumer sentiment surged 5.2 points to a 15-year high of 102.4 in the University of Michigan’s preliminary survey for May. Current conditions were steady while the expectations sub-index jumped (also to a 15-year high), as a solid jobs market outweighed skittish markets and rising trade tensions.

The Trump administration reached a deal with Canada and Mexico to remove tariffs on steel and aluminium imposed last year on national security grounds. Instead, enforcement mechanisms will be strengthened, paving the way for the likely passage of a revised NAFTA deal – the USMCA - through US Congress. The White House announced a 180-day reprieve to potentially imposing tariffs on imports of autos and auto parts while it negotiates trade deals with Japan and the European Union.


Today’s key data and events:

NZ Performance of Services Index Apr pre 52.9 (8:30am)

UK Rightmove House Prices May prev 1.1% (9:01am)

JN GDP Q1 Annualised exp -0.2% prev 1.9% (9:50am)

JN Industrial Production Mar Final prev -0.9% (2:30pm)

EZ Current Account Mar prev €26.8bn (6pm)

US Chicago Fed Nat Activity Index Apr prev -0.15 (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.


Besa Deda, Chief Economist