Bank of Melbourne

Morning Report

Main Themes: Strong earnings in the US and the report of talks on a megamerger in European autos triggered gains in equities and US bond yields.


Main Themes:Strong earnings in the US and the report of talks on a megamerger in European autos triggered gains in equities and US bond yields.

There was a muted reaction in financial markets to minutes from the Federal Reserve's meeting late last month. US policymakers debated lowering interest rates more aggressively than the 25 basis point cut last month

Share Markets: US share markets pared gains after the US Federal Reserve minutes fell short of signalling the central bank was ready to cut rates sharply. A batch of strong US earnings reports and talks of a megamerger in European autos also underpinned gains in equities. The Dow Jones rose by 240 points (or +0.9%) and the S&P 500 index lifted by 24 points (or +0.8%).

Interest Rates: The minutes published by the Federal Reserve Open Market Committee (FOMC) overnight did little to change investor bets about the path for more rate cuts this year. US bond yields rose by 3-6 basis points across the yield curve due to an improvement in risk appetites.

Germany sold 30-year bonds with a negative yield for the first time at an auction overnight, a milestone for a fixed-income market where the entire curve now yields less than zero. The very weak demand seen at the auction was expected.

Foreign Exchange: The Australian dollar continued to stay stuck within its recent trading range; overnight it traded a narrow range of 0.6773 to 0.6799. The major currencies also kept to tight trading ranges.

Commodities: Gold prices fell and a basket of base metal prices, the LMEX index, rose in overnight trade driven by the improvement in risk sentiment.

Australia: Skilled vacancies rose by 0.4% in July, after a decline of 0.2% in June.

Across industries, the largest rise was recorded for social professionals, up 4.1%, while the biggest decrease was in printing trades, down 10.2%.

Across States, the largest increase in advertised skilled vacancies was recorded in Tasmania, up by 7.7%, while the largest decrease was in Western Australia, dropping 2.3%.

United States: The minutes of the last Federal Reserve meeting held on July 30-31 were published overnight. This meeting pre-dated the turn for the worse in trade, which included US President Trump slapping additional tariffs on US$300 billion of Chinese imports and Chinese authorities allowing the Chinese yuan to depreciate and breach the key 7 level.

The minutes revealed members of the FOMC debated over whether to lower rates and by how much. The meeting delivered a 25 basis point cut to the federal funds target rate, but the minutes showed two members voted against the move and a “couple” of participants sought a bigger rate cut of 50 basis points.

US President Trump said overnight in a tweet that he has no immediate plans to cut the capital gains tax and "probably" will reach a trade deal with China. He added "I am the chosen one" to take on Beijing.


Today’s key data and events:

AU PMI Manufacturing Aug prev 51.6 (9am)

AU PMI Services Aug prev 52.3 (9am)

AU PMI Composite Aug prev 52.1 (9am)

JN All Industry Act. Index Jun exp -0.8% prev 0.3% (2:30pm)

EZ PMI Manufacturing Aug exp 46.2 prev 46.5 (6pm)

EZ PMI Services Aug exp 53.0 prev 53.2 (6pm)

EZ PMI Composite Aug exp 51.2 prev 51.5 (6pm)

UK CBI Retailing Reported Sales Aug exp -15 prev -16 (8pm)

US PMI Manufacturing Aug exp 50.5 prev 50.4 (11:45pm)

US PMI Services Aug exp 52.8 prev 53.0 (11:45pm)

US PMI Composite Aug prev 52.6 (11:45pm)

US Leading Index Jul exp 0.3% prev -0.3% (12am)

US Kansas City Fed Mfg Act. Index Aug exp 2 prev -1 (1am)


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.


Besa Deda, Chief Economist Ph: 02-8254-3251