Bank of Melbourne

Morning Report

Main Themes: The US-China trade relationship once again dominated overnight developments. Market sentiment lifted following a more conciliatory tone from Beijing, and Trump indicated that the US and China were scheduled to have a conversation today.
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Data table

Main Themes: The US-China trade relationship once again dominated overnight developments. Market sentiment lifted following a more conciliatory tone from Beijing, and Trump indicated that the US and China were scheduled to have a conversation today.

Share Markets: US share markets rallied after China’s commerce ministry said China would not immediately retaliate against the latest tariff increase by the US. The Dow Jones closed 326 points higher (or 1.3%) and the S&P500 lifted 37 points (1.3%).

Interest Rates: The US treasury rally took a breather, with yields higher overnight. Treasury Secretary Steve Mnuchin said that the department was seriously considering ultra-long dated US bonds. The yield on the 10-year US treasury note rose to 1.50%.

Foreign Exchange: The US dollar strengthened further on trade optimism, while the yuan ended a 10-day losing streak. The GBP continued to slide amid Boris Johnson’s latest bid to take Britain out of the European Union without a deal on October 31.

The Australian dollar fell to 67.3 US cents this morning, on the back of the broad gains in the US dollar.

Commodities: Oil prices clung to yesterday’s gains following a reported fall in US crude stockpiles. Safe-haven asset gold fell amid a rebound in investor sentiment.

Australia: Private capital expenditure fell 0.5% in the June quarter, the second consecutive quarterly fall. However, business spending plans continue to imply a modest increase in investment over 2019-20.

Investment into buildings and structures fell by 3.3%, reflecting the construction downturn while equipment spending rose 2.5%. Demand from the mining and manufacturing sectors improved (by 1.7% and 8.5% respectively) but were offset by a 2.4% fall in services.

Overall, the result suggests a modest increase in investment in the coming year. However there are downside risks given the weakness in business confidence and uncertain global outlook.

New Zealand: The ANZ Business Outlook Survey showed business confidence at the lowest level since 2008, despite the surprise 50 basis point cut by the RBNZ in August.

United States: The second estimate of Q2 GDP saw US growth revised lower to an annualised rate of 2% compared with the previous reading of 2.1%. The headline number shows that international trade headwinds are impacting domestic growth, however the underlying components suggest that the world’s largest economy is resilient.

Residential investment, net exports and inventories were the main drags on growth, but were offset by continued strength in consumer consumption. Consumer spending growth was revised up to 4.7% - the fastest growth since 2014.

 

Today’s key data and events:

NZ ANZ Consumer Confidence Aug prev -5.1% (8am)

NZ Building Permits Jul prev -3.9% (8:45am)

UK GfK Consumer Confidence Aug exp -12 prev -11 (9am)

JN Jobless Rate Jul exp 2.3% prev -2.3% (9:50am)

JN Industrial Production Jul exp 0.3% prev -3.3% (9:50am)

AU Building Approvals Jul exp 1% prev -1.2% (11:30am)

AU Private Sector Credit Jul exp 0.2% prev 0.1% (11:30am)

UK Nationwide House Prices Aug exp 0.1% prev 0.3% (4:00pm)

EZ Unemployment Rate Jul exp 7.5% prev 7.5% (7pm)

EZ CPI Estimate Aug y/y exp 1% prev 1.1% (7pm)

US Personal Income July exp 0.3% prev 0.4% (10:30pm)

US MNI Chicago PMI Aug exp 47.5 prev 44.4 (11:45pm)

US UoM Cons. Sentiment Aug exp 92.3 prev 92.1 (12am)

 

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.

 Nelson Aston, Economist  Ph: 02-8254-1316