Main Themes: US share markets were little changed and bond yields rose overnight as investors weighed reports that China was willing to buy more US agricultural products and the upcoming ECB meeting. Oil prices fell on the news that Trump fired his hawkish national security adviser.
Share Markets: The Dow Jones erased losses to end a mixed session on its overnight high (+0.3%) while the S&P 500 was flat. US bourses briefly turned positive earlier in the session on a newspaper article that reported China was willing to consider buying more US agricultural products as part of trade negotiations.
Interest Rates: Treasury yields rose for the fifth consecutive day as risk appetite continued to return. The US 10-year rose 12 basis points to 1.74% and the 2-year rose 11 basis points to 1.69%.
Yields on most sovereign bonds across the Eurozone rose ahead of the ECB meeting on Thursday.
Yesterday the Australian 10-year bond yield rose 4 basis points to 1.08% and the 3-year bond rose 2 basis points to 0.83%.
Foreign Exchange: The US dollar index edged up 0.1% as the USD/JPY momentarily reached a 6-year high of 107.52 overnight. The EUR was range-bound, and is currently trading at around 1.014 US dollars.
The Australian Dollar is currently buying 68.60 US cents after moving sideways overnight.
Commodities: Oil prices tumbled after President Trump fired his hawkish national security adviser, John Bolton, though they have subsequently pared most of those losses. Investors have had one eye on trade developments and the other on OPEC’s willingness to trim output in order to stabilise prices. WTI oil was down around 1% to US$57.4 per barrel.
Australia: Business confidence and conditions fell in August, according to the NAB monthly business survey. There was a 2-point fall in the conditions index to +1. The recent rate cuts and tax rebates have done little to cheer the mood of businesses who are taking their cues from a difficult operating environment and global uncertainty.
The sub-components of the conditions index point towards an ongoing difficult operating environment. Profitability (-3) fell to the lowest since November 2013 while trading conditions deteriorated for the second consecutive month to +3. The employment index recovered from last month’s fall to +2, but is still sitting just below its long-run average.
The business confidence index was also weaker, falling 3 points to +1 in August, the lowest since just before the Federal election in April 2019.
China: Consumer prices rose by 2.8% in the year to August, unchanged from the annual rate in July, and underpinned by higher food prices.
Prices in the wholesale inflation pipeline weakened further amid a US-China trade war; producer prices fell 0.8% in August, after a decline of 0.3% in July.
In a largely symbolic move, China announced it will remove its investment quota limit for foreigners. The announcement is designed to encourage more foreign capital and further liberalise its financial markets. Currently the quotas are rarely reached. As of August 30 there was barely a third of the existing quota used.
United Kingdom: Boris Johnson continues to insist that he won’t ask for another Brexit deadline extension, despite Parliament passing a bill that would legally compel him to.
United States: Trump’s dismissal of his national security adviser leaves the third vacancy of the post in three years. John Bolton was known for his hard-line views, especially on North Korea and Iran. Trump tweeted that they had clashed on many issues.
Meanwhile, data from the Census Bureau showed that median US household incomes grew just 0.9% last year, more slowly than the economy. This suggests that the strong economic growth of the last few years isn’t manifesting in higher standards of living for the general population.
Today’s key data and events:
NZ Net Migration Jul prev 3100 (8:45am)
JN BSI Large All Industry Q3 exp-1.0 prev -3.7 (9:50am)
AU Westpac-MI Consumer Confidence Sep prev 100.0 (10:30am)
US PPI Aug exp 0.0% prev 0.2% (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.
Nelson Aston, Economist Ph: 02-8254-1316