Main Themes: Data showing a cooling US economy was largely overshadowed by trade war speculation. US shares fell after a report suggested that the US was considering blocking Chinese companies from listing on US stock exchanges.
Share Markets: US share markets ended the week lower amid reports that the Trump administration could be considering delisting Chinese companies from US exchanges. The Dow Jones lost 71 points (or 0.3%) while the S&P 500 fell 16 points (or 0.5%).
European equities ended Friday’s session higher, spurred by a rally in mining shares. But trade tensions and poor economic data have left most major indices lower over the week.
Interest Rates: The US yield curve steepened following another twist in the US-China trade saga. Reports of a US plan to limit Chinese portfolio flows saw the yield on the 2-year note down 3 basis points to 1.62% while the 10-year shifted down 1 basis point to 1.67%. US yields were already under pressure earlier in the session following US economic data pointing to emerging signs of weakness in consumer spending, which had been the bright spot of the US economic engine recently.
Australian rates were broadly unchanged. The yield on the Australian 3 year bond is currently 0.7%.
Foreign Exchange: The US dollar stayed within a tight range against its major peers on Friday, apart from a slight dip following more bad news on the US-China trade war front. The US dollar index was down 0.02% on Friday. The pound was among the most volatile currencies in trading on Friday, ending the session down 0.3%. Uncertainty returned after it became clear that a court ruling that UK prime minister Boris Johnson’s suspension of parliament was illegal may not necessarily avert a no-deal Brexit.
The Australian dollar ended Friday lower and was flat over the week, near its 3 week lows. Investors are looking ahead to Tuesday’s RBA rate decision where markets are now pricing a 74.4% chance of a cut. The aussie ended Friday 0.2% higher and is around US$0.6758 this morning.
Commodities: Oil prices fell for another session on Friday as fears over post-Saudi oil refinery attacks supply issues faded. WTI fell $0.3 to $56 per barrel. Gold fell 0.5% to end the week back below $1,500 per ounce.
Australia: No major data to report.
China: Industrial profits were down 2.0% in the year to August, the third annual contraction in six months. It adds to signs of a struggling industrial sector amid a slowing economy and the lingering uncertainty regarding trade.
New Zealand: Consumer confidence fell 3.6% to 113.9 in September, to its lowest in four years. The weakness came from expectations on economic conditions over the next year. The index remains at a point which is consistent with optimism overall but the weaker momentum is somewhat concerning.
Europe: Concerns over European economic growth remain in the spotlight, according to the latest sentiment data. The European Commission’s economic confidence indicator dropped to the lowest in almost 5-years to 101.7 in September from 103.1 in August. One bright spot in the report was stronger than expected service sector growth, confirming that service sector companies remain relatively more prosperous compared with their manufacturing sector peers.
United States: US economic data for August painted the picture of an economy gradually running out of steam. Personal spending rose just 0.1% in August after a 0.6% rise in July. Matching the lower pace of spending, price growth was also sedate. Core inflation of personal consumption expenditures for August (which is the Fed’s preferred measure of inflation) was 1.8% year-on-year. The measure that the Fed officially targets for 2% inflation, overall PCE inflation was 1.4% higher than a year ago.
Separate data showed sluggish business investment in August. Durable goods orders, which are orders of non-military aircraft and other business equipment, fell by more than expected in August (-0.2%).
Reports on Friday night suggested that the US was considering capital controls on some Chinese companies. A subsequent statement from a US Treasury official on the weekend played down this prospect though, and said that “The administration is not contemplating blocking Chinese companies from listing shares on US stock exchanges at this time”.
Today’s key data and events:
NZ Building Permits Aug prev -1.3% (7.45am)
JN Industrial Production Aug exp -0.5% prev 1.3% (9.50am)
NZ ANZ Business Confidence Sep prev -52.3 (10am)
AU MI Inflation Sep y/y prev 0.0% (11am)
CH Manufacturing PMI Sep exp 49.6 prev 49.5 (11am)
CH Non-manufacturing PMI Sep exp 53.9 prev 53.8 (11am)
AU Private Credit Aug exp 0.2% prev 0.2% (11.30am)
CH Caixin Manufacturing PMI Sep exp 50.2 prev 50.4 (11.45am)
UK GDP Q2 final estimate exp -0.2% prev -0.2% (6.30pm)
EZ Unemployment Rate Aug exp 7.5% prev 7.5% (7pm)
EZ German CPI Sep y/y exp 1.3% prev 1.4% (10.00pm)
US MNI Chicago PMI Sep exp 50.0 prev 50.4 (11.45pm)
US Dallas Fed index Sep exp 1.5 prev 2.7 (12.30am)
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