Main Themes: Financial markets were fairly contained, and are awaiting further clues from Federal Reserve chair Powell who speaks over the next two days. Share markets were mixed, while bond yields and the US dollar edged slightly higher.
Share Markets: Share markets were mixed. European shares were dragged down by a profit warning from German chemicals giant BASF, citing trade tensions. US shares were also trading mostly in the red, but then a late rally in tech stocks saw the Nasdaq gain 0.5%. The S&P500 edged up 0.1%, while the Dow closed 0.1% lower.
Interest Rates: Yields on US treasuries edged slightly higher. Markets are continuing to react to the strong jobs data last Friday, and tempering expectations for more aggressive easing by the Federal Reserve. Nonetheless, movements were relatively subdued ahead of key Fed communication. Federal Reserve Chair Powell speaking over two days starting from tonight and the minutes will also be released tonight. US 2-year yields and US 10-year yields both edged up 2 basis points to 1.91% and 2.07%, respectively.
Foreign Exchange: The US dollar edged higher ahead of key central bank speak tonight. Traders will be looking for clues as to what the Fed will do at its next meeting later this month. The Australian dollar fell, in step with the stronger US dollar, trading at 69.3 US cents this morning.
Commodities: Oil prices rose, continuing to be supported by tensions in the Middle East and OPEC supply cuts. Gold prices also edged higher, but down from its multi-year high hit last month.
Australia: The boost to business confidence after the Federal election proved to be short lived according to the NAB business survey. Confidence eased from 7 in May to 2 in June, close to levels prior to the election. More concerning was the ongoing weakness in business conditions. The conditions index edged up from 1 to 3, but remains well below its long-run average. There was however, an encouraging bounce in the employment sub-index, providing some positive news for the labour market.
United States: JOLTS job openings slowed from 7372 in April to 7323 in May, the lowest in three months and down from a peak in November last year. It is pointing to an easing in job growth but still suggesting strength in the labour market.
The NFIB Small Business Optimism index fell from 105.0 in May to 103.3 in June, indicating growing unease about the implementation of tariffs.
Atlanta Federal Reserve President Bostic has said that the Fed was debating whether it should be “letting the economy run a little hotter”, and that “there are risks there”.
Philadelphia Federal Reserve President Harker said he didn’t see a compelling reason to lower interest rates given the strength in the US economy.
Today’s key data and events:
AU WBC-MI Consumer Confidence Jul prev 100.7 (10.30am)
CH CPI Jun y/y exp 2.7% prev 2.7% (11.30am)
CH PPI Jun y/y exp 0.2% prev 0.6% (11.30am)
UK Industrial Production May exp 1.5% prev -2.7% (6:30pm)
US Trade Balance May exp -£3.2bn prev -£2.7bn (6:30pm)
US Federal Reserve Chair Powell’s Testimony (10:30pm)
US Fed’s FOMC Meeting Minutes Jun 19 (4am)
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