Bank of Melbourne

Morning Report

Main Themes: Political developments continued to dominate news headlines, particularly with regards to US President Trump’s impeachment proceedings. Financial market sentiment was weaker, as suggested by falls in US shares, bond yields and a higher US dollar.
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Main Themes: Political developments continued to dominate news headlines, particularly with regards to US President Trump’s impeachment proceedings. Financial market sentiment was weaker, as suggested by falls in US shares, bond yields and a higher US dollar.

Share Markets: US shares were down slightly, continuing with a mildly risk averse tone on the political developments overnight. The Dow closed 0.3% lower and the S&P500 fell 0.3%.

Interest Rates:  US bond yields fell, also reflecting the risk averse mood. US 10-year yields fell 5 basis points to 1.69%.

Foreign Exchange: The US dollar index edged higher continuing to benefit from political uncertainty and global growth concerns. The New Zealand dollar gained another leg up after Orr’s comments in a speech yesterday. Meanwhile, the Australian dollar spiked temporarily last night but then lost those gains to be little changed this morning at 67.5 US cents.

Commodities: Oil prices steadied as concerns over global demand have been offset by supply constraints.

Global: Comments from Chinese officials were mostly positive on the trade negotiations. The Chinese commerce ministry said the US and China were making preparations to ensure “positive progress” ahead of the upcoming trade talks in October. The Chinese foreign minister, Wang Yi, also said that China was willing to buy more products needed by the Chinese market, and that hoped that both sides could take more “enthusiastic measures”. Nonetheless, a news report said that the US said it was unlikely to extend a waiver which allowed American firms to supply Chinese tech firm, Huawei.

Australia: Job vacancies declined 1.9% in the quarter ending August, the second consecutive decline. On a year ago, vacancies were down 1.9% in the year, which was the first annual contraction in 5½ years. It further adds to a range of indicators signalling softer conditions in the labour market.

New Zealand: In a speech yesterday, Reserve Bank of New Zealand (RBNZ) Governor said that the central bank was “pleased with the outcome of our decision” in regards to the 50 basis point rate cut in August. Orr also added that more tentative easing of monetary policy would risk inflation expectations remaining low. Importantly, Orr said that it was “our current view that we are unlikely to need ‘unconventional’ monetary policy tools. But we would be remiss not to be prepared”.

United States: The latest in political developments was the release of a whistleblower complaint that accused US President Trump of pressing Ukraine to investigate political rival Joe Biden.

Pending home sales rose 1.6% in August, partially offsetting a 2.5% decline in July. It was stronger than the consensus expectation for a 1.0% increase, adding to tentative signs that the housing market is improving.

Initial jobless claims edged up from 210k to 213k for the week ending September 21 but remain low and indicative of tightness in the labour market. 

Meanwhile, the Kansas City Fed manufacturing activity index eased from -6 in August to -2 in September, adding to the range of regional surveys suggesting that manufacturing activity is struggling.

GDP growth for the June quarter was unrevised at an annualized rate of 2.0%. The detail continued to reveal an economy supported by solid growth in consumer spending, reflecting ongoing strength in the labour market,  but weakness in business investment. The trade tensions are clearly hampering business investment plans by providing an environment of uncertainty.

Federal Reserve Vice Chair Clarida said that inflation expectations were in a range that he considered “consistent” with the Fed’s price stability mandate. Clarida also highlighted the strength of the labour market and that the unemployment rate at 3.7%, was close to estimates of full employment.

Minneapolis Federal Reserve President Kashkari argued for further rate cuts, because he saw no evidence the US economy was running at capacity or beyond capacity. “There’s no reason we should have interest rates trying to hold the economy back”. Kashkari is non-voting member of the Federal Reserve’s FOMC, and has tended to hold more dovish views on the board.

 

Today’s key data and events:

NZ ANZ Consumer Confidence Sep prev 118.2 (8.00am)

UK GfK Consumer Sentiment Sep exp -14 prev -14 (9.01am)

CH Industrial Profits Aug y/y prev 2.6% (11.30am)

EZ Economic Confidence Sep exp 103.0 prev 103.1 (7.00pm)

EZ Business Climate Indicator Sep exp 0.11 prev 0.11 (7.00pm)

EZ Consumer Confidence Sep final exp -6.5 prev -6.5 (7.00pm)

US Personal Income Aug exp 0.4% prev 0.1% (10.30pm)

US Personal Spending Aug exp 0.3% prev 0.6% (10.30pm)

US PCE Core Inflation Aug y/y exp 1.4% prev 1.4% (10.30pm)

US Durable Goods Orders Aug exp -1.2% prev 2.0% (10.30pm)

UoM Consumer Sentiment Sep final exp 92.1 prev 92.0 (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.

 

Janu Chan, Senior Economist  Ph: 02-8253-0898