Main Themes: The quiet night of developments resulted in sentiment being mixed across asset classes. Share markets rebounded, while bond yields were little changed. A move by UK PM Johnson to suspend parliament sent the pound lower. The Australian dollar is weaker.
Share Markets: US shares rebounded, after a choppy run amid trade tensions over the past few weeks. The Dow lifted 1.0% and the S&P500 rose 0.7%. Energy stocks were supported by higher oil prices.
Interest Rates: Yields on US treasuries were little changed given limited news overnight. US 10-year yields held in a range of between 1.45% and 1.49%, settling at 1.48%.
Foreign Exchange: The US dollar index lifted supported by a pause in new developments on the trade conflict between the US and China. GBP weakened, after Boris Johnson move to suspend parliament before current Brexit deadline of October 31, providing a hurdle for MPs to prevent a no-deal Brexit. The Australian dollar fell to 67.4 US cents this morning, moving inversely with the stronger US dollar and after weak construction data yesterday.
Commodities: Oil prices rose, boosted by a larger-than-expected fall in US crude stockpiles. Gold prices fell, as the US dollar lifted.
Australia: Construction work done came in much weaker than expected, falling 3.8% in Q2 (compared to the market median estimate of -1.0% and our estimate of -1.3%). On an annual basis, the level of activity declined by 11.1%, the sharpest fall in 18 years.
The latest result confirms that it is a challenging period for construction and the economy in general as both enter a period of cyclical weakness. Residential activity led the fall (-5.1%) while infrastructure construction was the best performing sector, though still recording a 1.1% drop.
With the construction sector accounting for more than 10% of the economy, it provides a downside risk to Q2 GDP forecasts.
Europe: German GfK consumer confidence held steady at 9.7 in the September reading, suggesting some resilience among consumers despite the weakness in the factory sector.
United Kingdom: UK Prime Minister Boris Johnson has received permission from the Queen to suspend parliament for five weeks from early September, and returning on October 14. The move limits the ability for MPs to prevent a ‘no-deal’ Brexit.
United States: Richmond Federal Reserve president Barkin said that he was weighing up the case for another reduction in official interest rates. While inflation was persistently weak, it had not yet persuaded the case for cutting rates. Barkin said that he was “watching closely the growth part”. Barkin is a non-voter on the FOMC rate setting committee this year.
Today’s key data and events:
NZ ANZ Business Confidence Aug prev -44.3% (11:00am)
AU Private Capital Expenditure Q2 exp 0.3% prev -1.7% (11:30am)
EZ Consumer Confidence Aug exp -7.1 prev -7.1 (7pm)
US GDP Q2 annualised exp 2% prev 2.1% (10:30pm)
US Core PCE Q2 annualised exp 1.8% prev 1.8% (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