Main Themes:The worries in regards to the trade war eased, helped by a stabilising of the yuan and better-than-expected Chinese trade data yesterday. Share markets rebounded, as did the Australian dollar. Bond yields remain near their lows.
Share Markets: An easing in trade tension fears supported a further recovery in share markets. The Dow gained 1.4%, and the S&P500 rose 1.9%. Stocks in Asia were also higher.
Interest Rates: Despite the improvement in risk appetite, bond yields are holding near their lows. US 10-year yields initially lifted to 1.79% before easing back to 1.72%, down 2 basis points over the session. Fed funds futures suggest another two 25 basis point cuts are priced in by the end of the year, and a total of 100 bps are priced in by the end of 2020.
Foreign Exchange: The US dollar index edged higher on easing trade tensions although weakened after Trump took aim at the Federal Reserve saying “the Fed’s high interest rate level, in comparison to other countries, is keeping the dollar high”. Sterling weakened after a media report said new PM Johnson was preparing to hold an election after the deadline for Brexit on October 31. Yesterday’s yuan fixing was slightly firmer, but is holding above the 7 level. RMB appears to have stabilised at around 2.5% weaker than it was last week. The Australian dollar strengthened from around 67.6 US cents to 68.0 US cents this morning as reflected in the improvement in risk appetite.
Commodities: Oil prices rose, supported by expectations that the recent falls in prices could lead to further production cuts by OPEC. In other commodities, nickel prices jumped on speculation that key producer Indonesia could bring forward a ban on exports. Gold prices eased as investor risk appetite returned.
Australia: RBA Assistant Governor Bullock spoke on financial stability among businesses, generally noting that they were financially sound despite challenges, particularly in the retail sector. While there were strains in the retailing, they were unlikely to pose a significant risk to the financial sector.
China: Trade data was better-than-expected in July, a welcome development given the backdrop of simmering trade tensions. Exports grew at an annual pace of 3.3%, the strongest pace in four months. It comes ahead of another wave of tariffs from the US due to take effect in September. Orders could rise over the next month, as businesses attempt to get ahead of the tariff, but the broader outlook remains bleak.
United States: Initial jobless claims fell from 217k to 209k for the week ending August 3, continuing to indicate underlying strength in the labour market.
Today’s key data and events:
NZ Net Migration Jun prev 4.2k (8.45am)
JN GDP Q2 exp 0.1% prev 0.6% (9.50am)
AU RBA Governor Lowe Gives Semi-annual Testimony in Canberra (9.30am)
AU RBA Statement on Monetary Policy (11.30am)
CH CPI Jul y/y exp 2.7% prev 2.7% (11.30am)
CH PPI Jul y/y exp -0.1% prev 0.0% (11.30am)
UK GDP Q2 exp 0.0% prev 0.5% (6.30pm)
US PPI Final Jul y/y exp 1.7% prev 1.7% (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