Main Themes: Markets were risk averse overnight. Concerns that trade tensions were impacting earnings weighed on share markets. US housing data was also weak. Bond yields and the US dollar fell.
Share Markets: With the earnings season currently underway, a set of mixed results dragged US indices lower. Weak results from rail freight company CSX raised concerns that trade tensions are beginning to have an impact on earnings. The Dow closed 0.4% lower, the S&P500 dropped 0.7% and the Nasdaq fell 0.5%.
Interest Rates: Yields on US treasuries fell, as risk appetite weakened and on soft US housing data. US 10-year yields fell 6 basis points to 2.05%. US 2-year yields dropped 4 basis points to 1.81%.
Foreign Exchange: The US dollar index edged lower, following weak housing data overnight. Sterling edged higher from a two-year low as the UK House of Lords backed a move to block suspension of parliament which was designed to make a no-deal Brexit more difficult. The Australian dollar was broadly unchanged at 70.1 US cents this morning as weaker risk appetite offset the impact of the lower US dollar.
Commodities: Oil prices dropped, likely reflecting weaker risk appetite, and extending a decline after Trump signalled an easing in tensions with Iran. Gold prices rose as the US dollar weakened and as soft US economic data supported monetary easing.
Australia: The Westpac-Melbourne Institute leading index six-month annualized growth rate improved from -0.47% in May to -0.02% in June. The index is continuing to point to below trend growth for the sixth consecutive month.
Europe: Inflation rose from 0.1% in May to 0.2% in June, with the annual rate up from 1.2% to 1.3%. Annual core inflation rose from 1.1% in May to 0.8% in June. The lift suggests some pick up in price pressures, but remains very low at well below the ECB’s target of around 2%.
European Central Bank (ECB) board member Coeure continued with the recent dovish theme of central banks stating that the ECB’s Governing Council was “determined to act in case of adverse contingencies and also stands ready to adjust all of its instruments”.
United Kingdom: CPI inflation was steady at 2% from May to June, keeping inflation in line with the BoE’s target. A tight labour market the risk of further pound depreciation provides upward pressure on inflation, although Brexit uncertainty is still likely to weigh on economic growth.
United States: Housing starts fell 0.9% in June following a 0.4% decline in the previous month. Moreover, a 6.1% slump in building permits in June points to further weakness in residential construction. The steady decline in mortgage rates over recent months has not had much impact in boosting construction.
The Federal Reserve’s Beige Book described the US economy, to be growing at a “modest” rate. Consumers continued to spend, “labor markets remained tight” and “the outlook generally wa positive for the coming months… despite widespread concerns about the possible negative impact of trade-related uncertainty”.
Today’s key data and events:
AU Labour Force Jun (11.30am)
Employment Change exp 10.0k prev 42.3k
Unemployment Rate exp 5.1% prev 5.2%
Participation Rate exp 65.9% prev 66.0%
AU NAB Business Confidence Q2 prev -1 (11:30am)
UK Retail Sales Jun exp -0.3% prev -0.5% (6.30pm)
US Philadelphia Fed Index Jul exp 5.0 prev 0.3 (10.30pm)
US Leading Index Jun exp 0.1% prev 0.0% (12.00am)
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