Main Themes: Markets are awaiting the key Federal Reserve meeting, looking for any clues that it is prepared to cut interest rates. The US economic data overnight was disappointing but would support expecations for lower rates. Share markets and US bond yields were marginally higher, but the Australian dollar fell to its lowest since the January flash-crash.
Share Markets: Share markets were marginally higher overnight, likely reflecting hopes that the Federal Reserve will be more inclined to lower interest rates. The Dow and S&P500 both fell 0.1%.
Interest Rates: Yields on US interest rates lifted slightly, as risk appetite improved, although yields remain near two-year lows. Financial markets are pricing in just a small chance of a move at the Fed’s meeting this week, but pricing in at least two rate cuts from the Federal Reserve by the end of this year. US 10-year yields initially dipped on disappointing manufacturing data but then recovered later on.
Foreign Exchange: The US dollar index was broadly unchanged, but dipped temporarily upon the release of the New York manufacturing index. Sterling fell to its lowest since late December 2018 against the US dollar as prominent Brexit supporter Boris Johnson established a lead in replacing Theresa May. The Australian dollar weakened to its lowest since the flash-crash in early January, and is trading at close to 68.5 US cents. Geopolitical risks, trade concerns and the lingering impact from weak Chinese data on Friday is weighing on the currency.
Commodities: Commodity prices remained pressured as global growth concerns, reinforced by soft Chinese economic growth data on Friday, outweighed expectations of curtailment of supply. Oil and copper prices fell. Gold prices remained close to a 14-month high on expectations that the Federal Reserve could lower interest rates.
Australia: There was no major economic data published yesterday.
New Zealand: The performance of services index rose to 53.6 in May, from 52.0 in April.
United States: The New York Empire manufacturing index dropped sharply from 17.8 in May to -8.6 in June, the weakest since October 2016. The deterioration comes amid increasing uncertainty over trade tensions. While this survey can be very volatile month-to-month, it may provide an early indication of weakening manufacturing activity.
The NAHB housing market index, which measures confidence among home builders, fell from 66 in May to 64 in June. The NAHB said there were “concerns over trade issues” as inputs to residential construction would likely be impacted by tariff increases on Chinese imports. The trade concerns appear to outweigh the expected boost to demand from lower mortgage rates.
Today’s key data and events:
NZ Consumer Confidence Q2 prev 103.8 (7am)
CH New Home Prices May prev 0.62% (11:30am)
AU ABS House Prices Q1 exp -2.6% prev -2.4% (11:30am)
AU RBA Board Meeting Minutes (11:30am)
AU NSW State Budget 2019-20 (2pm)
EZ Trade Apr exp €16.3bn prev €17.9bn (7pm)
EZ Core CPI May Final y/y exp 0.8% prev 0.8% (7pm)
EZ ZEW Survey Expectations Jun prev -1.6 (7pm)
US Housing Starts May exp 1235k prev 1235k (10:30pm)
US Federal Reserve Meeting, Day 1 of 2-day Meeting
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