Main Themes: Markets were fairly calm given few new developments on the trade front. Share markets, bond yields and currencies were little changed.
Share Markets: The recent rally in US equities lost steam as the optimism from a deal being reached between the US and Mexico faded. A positive start gave way to leave the Dow, S&P and Nasdaq down ever so slightly. Trade concerns are still lingering with focus on markets likely turning to tensions between the US and China.
Interest Rates: Similarly, US treasury yields were fairly contained. US 10-year yields lifted to a high of 2.18% before settling at 2.14%, down just 1 basis point.
Foreign Exchange: The US dollar index was down marginally. There was action in sterling, which lifted after wage growth was stronger than expected. The Australian dollar was rangebound, and little changed at 69.6 US cents this morning.
Commodities: Prices of commodities were also little changed, including oil and gold. Concerns about weaker global demand is being offset by expectations of supply cuts by OPEC.
Australia: NAB business confidence jumped from zero to 7 in May, after the Federal election, the highest in ten months. However, the business conditions index was concerning, which deteriorated from 3 to zero. Notably, the forward orders sub-index fell to -3.4 which was the lowest in five years, raising questions about how much the jump in confidence could be sustained. Some good news from the release was an improvement in the employment sub-index from -1 to 2, but it remains low by historical standards.
Europe: Finnish central bank head Olli Rehn echoed recent comments by ECB officials that the central bank was open to provide support to growth, and could include measures such as lowering interest rates, tweaking guidance, use a multi-tier deposit rate and quantitative easing.
United Kingdom: Employment grew 32k in the three months to April, more than an expected 4k by markets but down from the 99k gain in the previous month. It left the unemploymebnt rate steady at 3.8%. The key surprise was a pickup in wage growth. Weekly earnings (excluding bonuses) lifted from an annual rate of 3.3% in March to 3.4% in April, against expectations to ease to 3.2%.
United States: The NFIB small business optimism index rose from 103.5 in April to 105.0 in May, the highest in seven months. The lift suggests that resilience in the consumer sector domestically is supporting confidence among small businesses despite the uncertainty from tariffs and trade tensions abroad.
Producer price inflation eased from an annual rate of 2.2% in April to 1.8% in May. Excluding food and energy, PPI inflation also eased from an annual rate of 2.4% to 2.3%, the weakest in 16 months. While the easing in core producer price inflation was expected, it suggests limited upward price pressures and is despite the range of tariffs implemented and also an extremely low unemployment rate.
Today’s key data and events:
NZ Net Migration Apr prev 5020 (8.45am)
AU RBA Assistant Governor Kent speaks (9:25am)
JN Machinery Orders Apr exp -0.9% prev 3.8% (9.50am)
AU WBC-MI Consumer Confidence Jun prev 101.3 (10.30am)
CH CPI May y/y exp 2.7% prev 2.5% (11.30am)
CH PPI May y/y exp 0.6% prev 0.9% (11.30am)
AU RBA Assistant Governor Ellis speaks (7pm)
EZ ECB President Draghi speaks (6:15pm)
US CPI May exp 0.1% prev 0.3% (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 Ph:02-8253-0898