Main Themes: Focus was on the strike on Saudi Arabia’s oil production, which saw Brent oil prices record its largest intraday jump in over 30 years, and close nearly 15% higher. The heightened geopolitical concerns underpinned a risk averse tone in other asset markets.
Share Markets: Share indices across the US and Europe were down, reflecting the risk averse mood. The Dow fell 0.5%, while the S&P500 and the Nasdaq dropped 0.3%.
Interest Rates: Demand for bonds was supported by safe-haven buying, which drove down yields across the curve. US 10-year yields fell 5 basis points to 1.85%.
Foreign Exchange: Weaker sentiment saw the US dollar index edged higher, while the Japanese yen was the outperformer. The Australian dollar held in a narrow range of 68.5-68.8 US cents, as the strength in commodity prices offset the broader risk averse tone. This morning, the AUD is trading at 68.7 US cents, little changed from 24 hours ago.
Commodities: Oil was the big mover yesterday, with Brent prices ending nearly 15% higher. OPEC has said it is assessing the impact on the oil market. Russia has also said that there were enough global stockpiles to replace the lost production. Nonetheless, the attack points to the risk of a further escalation in tensions in the region. Prices of other commodities were also higher, including gold reflecting its appeal as a safe haven .
Australia: No major data to report.
China: Economic activity in China slowed in August across retail, investment and industrial production. Retail spending growth edged down from an annual rate of 7.6% in July to 7.5% in August. Meanwhile, industrial production growth eased from 4.8% to 4.4% over the same period. Fixed asset investment slowed from 5.7% to 5.5%. The trade tensions are in particular impacting factory activity in China, but it appears that consumer spending and investment spending are not picking up the slack. The signs of slowing suggest that more stimulus measures are on the cards. Chinese Premier Li Keqiang said that it was “very difficult” for China’s economy to grow at 6% or more, given a high starting point and with the current international backdrop which was described as “complicated”.
New Zealand: The performance of services index edged down from 54.8 in July to 54.6 in August, but remains comfortably in expansion territory.
Europe: The European Central Bank (ECB) Chief Economist Philip Lane said that the central bank would do “whatever it takes to hit our inflation target” which included lowering further the deposit facility rate, already at -0.5%. Governing Council Member Pierre Wunsch was also in support of the measures stating that they were needed to give a strong signal to combat low inflation. The comments follow well-publicised criticism from central banks from Germany, France and the Netherlands against the ECB’s policies last week.
United States: The NY empire manufacturing survey eased from 4.8 in August to 2.0 in July, and is continuing to signal a slowdown in manufacturing activity.
Today’s key data and events:
AU ABS Dwelling Prices Q2 prev -3.0% (11.30am)
AU RBA Board Meeting Minutes Sep (11.30am)
EZ EU ZEW Expectations Sep prev -43.6 (7pm)
US Industrial Production Aug exp 0.2% prev -0.2% (11.15pm)
US NAHB Housing Market Index Sep exp 66 prev 66 (12.00am)
Total Net TIC flows Jul prev $1.7bn (6.00am)
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