Main Themes: A further easing in trade tensions continued to provide some modest support for sentiment. US retail sales data was also stronger-than-expected, further alleviating concerns about the growth outlook. Oil prices are set to surge today after a strike in Saudi Arabia is expected to cut global oil supply by 5%.
Share Markets: US shares had a mixed session, as stronger sentiment from an easing in trade tensions in Asian trade on Friday faded. The Dow however, gained 0.1%, the S&P00 fell 0.1%, and the Nasdaq dropped 0.2%.
Interest Rates: Yields on US treasuries rose, supported by stronger-than-expected US retail sales data. US 10-year yields scaled 12 basis points higher to 1.90%, and have gained more than 40 basis points since early this month on easing concerns over trade and on the outlook for growth.
Foreign Exchange: The US dollar index trended lower, although it briefly recovered following the retail sales release. US dollar weakness mostly reflected a stronger euro, continuing to react to the European Central Bank (ECB) on Thursday. While the ECB delivered stimulus as widely expected, the market reaction suggested that markets were prepared for a more cautious stance from the ECB. Sterling continued to strengthen on hopes the UK can avoid a hard Brexit, rising to $1.25 against the US dollar, and AUDGBP falling to £0.5503. A media report suggested that Northern Ireland’s largest party had agreed to accept some EU rules after Brexit, suggesting a softer stance on the contentious Irish backstop. The Australian dollar edged higher on the easing trade tensions between China and the US.
Commodities: Oil prices edged lower, as concerns about global demand overshadowed the progress in US-China trade negotiations. An attack on two Saudi plants on Saturday, cutting Saudi oil production by half, is expected to drive oil prices higher today. The strike is estimated to have hit about 5%
of global oil supply. Saudi Arabia has said that it can draw on reserves but it could take weeks to restore production.
Global: Chinese official news agency Xinhua reported on Friday that it would exempt some agricultural products from additional tariffs on US goods, which included pork and soybeans. It added to the range of conciliatory measures over recent weeks between China and US, which continue to be positive developments in trade relations.
Australia: No major data to report.
New Zealand: New Zealand manufacturers continued to hurt in August, according to the BusinessNZ manufacturing survey. The index remained in contractionary territory for the second consecutive month at 48.4 in August. The result was marginally better than the 48.1 recorded in July.
In the housing market, data from the Real Estate Institute of New Zealand showed a 6.1% decline in the number of house sales in the year to August. Prices look to have troughed though. The REINZ house price index rose 2.9% nationally compared with a year ago while Auckland house prices were at the highest since March.
Europe: The Euro zone’s trade surplus widened from €17.7 billion to €19.0 billion in July.
Japan: The final reading for industrial production confirmed a bounce in Japanese industrial output in July. Output increased 1.3% on the month and was 0.7% higher than a year ago. Capacity utilisation was revised higher to a 1.1% gain from the previous estimate of -2.6%. July’s result is a welcome one for the economy, but the manufacturing sector will remain constrained by an uncertain global growth outlook and sluggish domestic demand.
United States: Retail spending grew 0.4% in August stronger than the 0.2% increase expected by the median estimate, and followed a revised 0.8% increase in July. It continues to suggest resilience among the consumer despite the trade tensions negatively impacting the business sector and financial markets.
Consumer sentiment also supports the notion that the consumer is so far weathering the uncertainty from the trade tensions. The University of Michigan consumer sentiment index lifted from 89.8 in August to 92.0 in September, improving from a near three-year low.
Today’s key data and events:
NZ Performance of Services Index Aug prev 54.7 (8:30am)
CH Industrial Production Aug y/y exp 4.8% prev 5.2% (12.00pm)
CH Fixed Asset Investment Aug y/y exp 5.7% prev 5.7% (12.00pm)
CH Retail Sales Aug y/y exp 7.9% prev 7.6% (12.00pm)
EZ ECB Chief Economist Lane Speaks in London (9:15pm)
US Empire Manufacturing Survey Sep exp 4.0 prev 4.8 (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