Main Themes: Markets were mostly optimistic over trade negotiations between the US and China at the G20 meeting this weekend, although some of that joy faded in the US session. US stocks were mixed after a positive day in Asian trade yesterday, while bond yields fell. The Australian dollar performed well, and is back above US 70 cents.
Share Markets: Hopes of an easing in trade tensions were supportive of share markets in Asian trade yesterday, however US shares were more mixed overnight. Some of that optimism faded into the US session - the S&P500 rose 0.4%, and tech stocks also benefited with the Nasdaq rising 0.7%. The Dow fell, weighed down by Boeing after a news report of new safety risks.
Interest Rates: Yields on US treasuries fell, despite the improvement in risk appetite. US 10-year yields initially lifted to 2.07% before sliding to 2.01%, as some of the optimism faded on a trade deal. Markets are still expecting the Fed to lower official interest rates as soon as its next meeting in July. A 25 basis point cut is fully priced into markets.
Foreign Exchange: The US dollar index edged higher, but then lost those gains to be broadly unchanged. The Australian dollar was a strong performer, benefiting from hopes that trade tensions will thaw. AUD poked back above 70 US cents, and is trading at 70.1 US cents this morning.
Commodities: Commodity prices were broadly unchanged ahead of the G20 meeting and Trump-Xi talks. Oil prices gained some support on expectations that OPEC would extend an agreement to cut supply and potentially deepening the production curbs.
Australia: No major data to report.
China: Industrial profits grew 1.1% in the year to May, an improvement on the 3.7% annual decline in April. The lift reflected quicker sales and slower increases in corporate costs. However, on a cumulative basis, profit growth remained weak, with profits over the first five months of the year down 2.3% on a year ago.
Yesterday, the South China Morning Post reported that the US and China agreed to a tentative truce, to halting the next round of US tariffs on an additional $300 billion worth of Chinese imports. However, US White House economic adviser Larry Kudlow said there were no preconditions and nothing was agreed.
Europe: German inflation was as expected, and steady from a month ago, lifting 1.3% in the year to June (EU harmonised measure). With inflation remaining well below the ECB’s target of close to 2%, it continues to support expecations for further monetary easing.
Confidence indicators weakened across the board in June, including economic confidence, the business climate indicator and in the industrial and services sector. Consumer confidence was unrevised at -7.2 but down on the -6.5 reading in May. The escalation of global trade tensions and lack of momentum in economic activity is dampening the mood across Europe.
New Zealand: ANZ business confidence slumped from -32.0 in May to -38.1 in June, the weakest in eight months and indicating a net 38.1% of respondents expect the economy to deteriorate in the year ahead.
United States: GDP growth was confirmed at a solid annualised rate of 3.1% in the March quarter, although the median estimate was for a 3.2% gain. Consumption growth was revised lower. There were some signs of softer domestic demand with growth being driven by exports and inventories. It highlights doubts that strength will be sustained into the second quarter of the year.
Pending home sales rose 1.1% in May, broadly in line with expectations for a 1.0% gain. It followed a 1.5% decline in April. As a trend, sales are continuing to move sideways, although lower mortgage rates should provide some support to the housing market.
Initial jobless claims rose 10k to 227k for the week ending June 22, the highest in seven weeks. The four-week moving average which abstracts from volatility also lifted from 219k to 221k. While claims are off their lows, they are still suggesting a tight labour market.
San Francisco Federal Reserve President Mary Daly said on Friday that it was “too early” to know if the US Fed should cut interest rates”. Daly is a non-voting board member of the Fed’s rate setting committee this year.
Today’s key data and events:
NZ ANZ Consumer Confidence Jun prev -3.2% (8.00am)
UK GfK Consumer Sentiment Jun exp -11 prev -10 (9.01am)
JN Jobless Rate May exp 2.4% prev 2.4% (9:30am)
JN Industrial Production May exp 0.7% prev 0.6% (9.50am)
AU Private Sector Credit May exp 0.2% prev 0.2% (11.30am)
JN Housing Starts May y/y exp -4.2% prev -5.7% (3pm)
CH Current Account Q1 final prev US$58.6bn (~)
UK GDP Q1 final exp 0.5% prev 0.5% (6.30pm)
EZ CPI Estimate Jun y/y exp 1.2% prev 1.2% (7pm)
US Personal Income May exp 0.3% prev 0.5% (10.30pm)
US Personal Spending May exp 0.5% prev 0.3% (10.30pm)
US PCE Core Inflation May y/y exp 1.5% prev 1.5% (10.30pm)
US MNI Chicago PMI Jun exp 53.5 prev 54.2 (11.45pm)
US UoM Consumer Sentiment Jun final exp 98.0 prev 97.9 (12am)
CH Mfg PMI Jun exp 49.5 prev 49.4 (Sun 30 Jun, 11am)
CH Non-mfg PMI Jun exp 54.2 prev 54.3 (Sun 30 Jun, 11am)
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