Bank of Melbourne

Morning Report

Main Themes: There was red across the board for global markets overnight as economic pessimism intensified. Global equities and bond yields were lower while gold rose as investors turned risk averse.

Main Themes: There was red across the board for global markets overnight as economic pessimism intensified. Global equities and bond yields were lower while gold rose as investors turned risk averse.

Share Markets: Benchmark share indices around the world were lower amid general concerns about weakening economic growth and some sector specific worries. Energy stocks were hit hardest on the back of a further decline in oil prices while consumer goods reacted to soft automaker earnings reports in the US. The Dow Jones lost 494 points (or 1.5%) while the S&P 500 was 53 points lower (or 1.9%).

European share markets all fell dramatically, ending the session on their lows as economic gloom intensified. The Euro Stoxx 50 was down 3%, along with the German DAX (-2.8%) and London’s FTSE 100 (-3.2%).

Interest Rates: US 2-year treasury yields registered another substantial fall as market expectations for a further Fed hike picked up. Weaker than expected US private payrolls and vehicle sales data as well as a slightly more dovish tone from New York Fed president John Williams and Richmond chief Thomas Barkin raised concerns that the fallout from the US-China trade war is spreading from the manufacturing sector.

The US 2-year yield fell 7 basis points to 1.48% while the 10-year yield dropped 4 basis points to 1.60%.

Australian bond yields were also lower. The 10-year bond yield is sitting at 0.97% while the 3-year is at 0.63%.

Foreign Exchange: The US dollar index see-sawed overnight, ending the session slightly lower. After initially falling against the euro and yen, the US dollar trimmed some of those losses following weaker than expected private payrolls data, but resumed a downward trend as the session went on.

The Australian dollar remains under pressure following the RBA’s rate cut. This morning it was trading around 67.06 US cents.

Commodities: An unexpected rise in US crude inventories sent oil lower as investors braced for the prospect of a global slowdown in economic growth. WTI futures were down US$0.9 per barrel to US$52.7. Oil is now trading lower than where it was before the Saudi oil refinery attacks led to a spike in prices to above $62 per barrel.

Gold prices rose amid rising global uncertainty to U$1,499.3 per ounce.

Australia: No major data to report.

Europe: The WTO sided with the US in its dispute with the European Union about subsidies for Airbus. It ruled that European government aid for Airbus was illegal and that the US would be justified in imposing a 10% tariff on aircraft imported from the EU. The EU said it would respond “firmly” if the US acts.

United Kingdom: Boris Johnson is holding firm on his commitment to pull Britain from the EU by October 31. Under his latest proposal, Northern Ireland would remain in the EU in terms of agriculture and manufacturing goods regulation, but had the right to hold a vote to exit every four years.

United States: Private payrolls data came in slightly below expectations. The ADP report showed a 135,000 increase in jobs in September. This was the smallest gain in 3 months and just below expectations of a 140,000 increase. The US-China trade dispute and a deteriorating economic outlook appear to be having an impact on hiring decisions. The official labor department’s report on jobs growth for September will be released on Friday.

Souring earnings reports from Ford and General Motors added to fears that demand for vehicles was falling. Both automakers showed thinning profit margins in the industry and suggested falling sales numbers over recent months.


Today’s key data and events:

AU AiG Performance of Services Sep prev 51.4 (8.30am)

JN Jibun Services Sep final prev 52.8 (10.30am)

AU Trade Balance Aug exp $5.6bn prev $7.3bn (11.30am)

UK Markit/CIPS Services PMI Sep exp 50.3 prev 50.6 (6.30pm)

EZ PPI Aug y/y exp -0.3% prev 0.2% (7pm)

EZ Retail Sales Aug exp 0.3% prev -0.6% (7pm)

US Markit Services PMI Sep final exp 50.9 prev 50.9 (11.45pm)

US ISM Non-Manufacturing Index Sep exp 55.2 prev 56.4 (12am)

US Factory Orders Aug exp -0.2% prev 1.4% (12am)

US Durable Goods Orders Aug final prev 0.2% (12am)

US Fed's Evans (4.45pm), Quarles (10.30pm), Mester (2.10am) and Kaplan (3am) speak


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