Main Themes: It was a mixed session overnight. Shares rose on a denial from the US about China delisting plans, however, bond yields were down slightly and the US dollar rose. The range of economic data continue to point to weak momentum globally. The RBA meets today, and is expected to deliver a 25 basis point reduction to the cash rate.
Share Markets: Equity markets rose, after the US Treasury denied a news report last Friday that it was considering delisting Chinese companies from US stock exchanges. There was also an improvement in Chinese manufacturing data. The Dow rose 0.4%, the S&P500 was up 0.5%. Tech stocks led the way – the Nasdaq rose 0.8%.
Interest Rates: Yields on US bonds were marginally lower, particularly following the release of weak US business surveys. US 10-year yields down 1 basis point to 1.66%.
Foreign Exchange: The US dollar index was higher, partly reflecting euro weakness. Softer-than-expected German inflation weighed on the euro. However, ongoing uncertainty regarding trade and broader weakness in the global economy are other factors providing support to the US dollar. Conversely, the Australian dollar weakened from 67.7 US cents to 67.5 US cents over the past 24 hours.
Commodities: Oil prices fell, as concerns over demand outweighed worries over supply. The spike in prices in the wake of the attack on Saudi Arabia’s oil facilities has proved to be temporary. Gold prices fell as the US dollar lifted.
Global: The Trump administration has downplayed a report released on Friday, denying that it was discussing imposing limits on US investments in Chinese companies and financial markets. Additionally, a statement from the US Treasury said that there were no current plans to stop Chinese companies from listing on US exchanges. China warned of instability in international markets if there was any “decoupling” of China and the US. These developments follow a news report which suggested the Trump administration was considering delisting Chinese companies from US stock exchanges on Friday.
Australia: Today, the RBA will meet and we expect that it will lower the official cash rate by 25 basis points to 0.75%.
Credit growth in the private sector remained anaemic in August, according to the latest data from the RBA. Private sector credit expanded 0.2% for the second month in a row in August. The latest result leaves the annual rate of growth at just 2.9%, the lowest in 8 years.
Despite signs of a housing price turnaround in major capital cities, housing sector credit turned weaker. Housing sector credit grew 0.2% in August compared with 0.3% in July. On an annual basis, growth slowed to 3.1% which is the lowest in the history of the series (spanning back to 1977). Separate data for new lending has shown new housing loans increasing in recent months. The slowdown in aggregate credit growth while new lending growth has been increasing suggests that households are paying down their loans at a relatively faster rate.
Elsewhere in the report, business credit grew 0.2% in August, leaving annual growth at 3.4%. Soft business credit conditions correspond with the reported deterioration in business confidence and operating environment over the last year. Other personal credit, which includes credit cards and personal loans, contracted 0.2% in August and has been in decline for 14 consecutive months.
Separate data from the Melbourne Institute showed inflation pressures remain muted in September. The MI inflation gauge rose 0.1% on the month and 1.5% year-on-year.
China: The last release of economic data before a week-long national holiday and subsequent US-China trade talks showed China’s manufacturing sector improving somewhat in September. The official manufacturing PMI rose to 49.8 in September, more than expected but still just under the 50 level that separates contraction from expansion. New orders and infrastructure spending were bright spots, but factory output remained weak. The PMI for non-manufacturing companies fell slightly to 53.7 while the Caixin manufacturing PMI rose to a 1-year high of 51.4.
New Zealand: Residential dwelling approvals rose 0.8% in August, leaving annual approvals at a multi-decade high. Auckland drove the national increase with a record high number of annual approvals, including an increasing number of apartments. Construction activity in New Zealand has been boosted by strong population growth and a shortage of housing.
Despite the high level of construction activity, business confidence fell to the lowest since April 2008. Manufacturing sector firms were the most pessimistic. The drop in confidence comes despite the RBNZ’s surprise 50 basis point rate cut last month.
Europe: German CPI was weaker than expected, falling 0.1% in September (the EU harmonised measure). It saw the annual rate ease from 1.0% in August to 0.9% in September, the weakest in three years.
The unemployment rate fell from 7.5% in September to 7.4% in August in the Euro zone, the lowest since 2008. It reflected a fall in German unemployment, and is despite weak economic activity, particularly in the industrial sector.
United States: There were further signs of weakening business activity. The Dallas Fed manufacturing index fell from 2.7 in August to 1.5 in September. Most concerning was the fall in future business activity to -6.8, for the second time this year.
The MNI Chicago PMI fell from 50.4 in August to 47.1 in September, the third below 50 reading in four months, signalling contraction.
Today’s key data and events:
AU AiG Perf of Manufacturing Sep prev 53.1 (8.30am)
JN Jobless Rate Sep exp 2.3% prev 2.2% (9.30am)
JN Tankan Large Mfg Index Q3 exp 1 prev 7 (9.50am)
AU CoreLogic House Prices Sep prev 1.0% (10am)
JN Jibun Bank PMI Sep prev 48.9 (10.30am)
AU Building Approvals Aug exp 3.0% prev -9.7% (11.30am)
AU Cash Rate Decision exp 0.75% prev 1.0% (2.30pm)
JN Vehicle Sales Sep y/y prev 4.0% (3pm)
UK Nationwide House Prices Sep exp 0.1% prev 0.0% (4pm)
US Fed’s Evans Speaks (5.15pm)
EZ Markit Eurozone Mfg PMI Sep exp 45.6 prev 45.6 (6pm)
EZ Core CPI y/y Sep exp 1.0% prev 0.9% (7pm)
AU RBA Governor Lowe Speaks (7.20pm)
US Markit US Manufacturing PMI Sep exp 51.0 prev 51.0 (11.45pm)
US ISM Manufacturing PMI Sep exp 50.1 prev 49.1 (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