Main Themes: With little major news flow, global markets were relatively quiet heading into the US long weekend. On Sunday, the latest round of tariffs in the US-China trade dispute took effect, including on $110 billion worth of Chinese imports as well as retaliatory levies from China.
Share Markets: US shares closed mostly higher on Friday ahead of the Labor Day long weekend. The Dow gained 41 points (or 0.2%) and the S&P500 was 1.9 points higher (or 0.1%). Despite ending the week stronger, August saw the biggest decline in the S&P500 since May.
Interest Rates: Interest rates were little changed on Friday on light volume. Investors remained focused on the prospect of worsening US-China trade relations and deteriorating economic growth. Both the 2 and 10 year US Treasury yields fell slightly to 1.51%.
Foreign Exchange: The US dollar index rose on Friday, mostly due to a weaker Euro which fell below US$1.10 to its weakest level since 2017. Poor economic data out of the euro zone has reinforced market views that the ECB will cut rates and commence a new round of quantitative easing at its September meeting.
Meanwhile, the Argentine peso registered its worst month in history as the country verges on bankruptcy. The government has launched currency controls in a bid to stem the flight of dollars from the country.
The Australian dollar ended the week lower on the back of weaker-than-expected building data and is currently at 67.3 US cents.
Commodities: Oil extended its loses on concerns over US-China trade tensions, including China’s announcement of a further 5% tariff on US crude and falling OPEC stockpiles, WTI fell 2.8% on Friday to end August lower by 5.9%.
Australia: Building approvals fell sharply in July, as the construction sector’s fortunes worsened. Total dwelling approvals declined 9.7%.
Both houses and apartments were worse off, with housing approvals at the lowest level since 2013 and apartment approvals the lowest since 2012. The more volatile private apartments sector fell 18.4% while private detached dwellings were down a more modest 3.3%.
NSW and Victoria saw the largest falls, with apartment approvals a particular drag in these states (-47.1% and -43.5%, respectively). The other states recorded increases in approvals, including a standout 34.8% increase in building approvals in South Australia.
Meanwhile, the weak run of private sector credit growth continued in July. Credit to the private sector rose another 0.2% in the month, while the annual pace of growth stepped down from 3.3% to 3.1%. It was the weakest annual pace in six years.
The weakness in building approvals and credit growth is consistent with the soft pace of economic growth. The rate cuts from the RBA and tentative green shoots in house prices suggest that we could see a turning point in credit growth in the coming months. Still, there are persistent headwinds from slow wages growth and high household debt which could constrain borrowing.
Today’s key data and events:
AU AiG Perf of Manufacturing Aug prev 51.3 (8:30am)
NZ Terms of Trade Q2 exp 1% prev 1% (8:45am)
JN Capital Spending Q2 y/y exp 1.8% prev 6.1% (9:50am)
JN Jibun Manufacturing PMI Aug prev 49.5% (10:30am)
AU MI Inflation Gauge Aug prev 0.3% (11:30am)
AU Company Profits Q2 exp 2% prev 1.7% (11:30am)
AU ANZ Job Advertisements Aug prev 0.8% (11:30am)
CH Caixin Manuf. PMI Aug exp 49.8 prev 49.9 (11:45am)
JN Vehicle Sales Aug exp 0.1% prev 0.3% (3pm)
EZ Markit Manufacturing PMI Aug exp 47.0 prev 47.0 (6pm)
UK Markit Manufacturing PMI Aug exp 48.8 prev 48.0 (6:30pm)
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.
Nelson Aston, Economist Ph: 02-8254-1316