Main Themes: Markets were on edge ahead of US-China trade talks scheduled later this week on October 10. Shares were down mildly, but bond yields were higher. The Australian dollar is lower.
Share Markets: Global equity markets were mixed given the uncertainty ahead of trade talks. In the US, the Dow and S&P500 weakened, although losses were pared later in the session.
Interest Rates: Yields on US treasuries lifted. US 10-year yields rose 5 basis points to 1.56%, still reacting to a US jobs report on Friday, which was better than feared by markets.
Foreign Exchange: The US dollar index was up slightly, and the US dollar was higher against the yen. The Australian dollar weakened in the mildly risk averse environment from around 67.5 US cents to 67.3 US cents this morning.
Commodities: Concerns over demand continue to weigh on oil prices, which weakened overnight. Worries were underpinned by uncertainty over a trade deal later this week and expectations of a rise in inventories. Gold prices weakened, reflecting the stronger US dollar and probably positive US data last Friday.
Global: News was mixed ahead of key trade talks between the US and China on October 10. There was a report that Beijing was reluctant to agree to a broad trade deal which was one of Trump’s core demands. US chief economic advisor Larry Kudlow said that delisting Chinese companies on US stock exchanges was “not on the table”.
Australia: In data last Friday, retail sales picked up in August, lifting 0.4%, following a flat result in July. However, given that incomes have received a boost from the tax refunds and rate cuts from the RBA, the pace of growth in retailing remains disappointing.
Strong gains in clothing, footwear & personal accessories (1.8%) and department store sales (1.1%) for August suggests some degree of retail therapy. However, a pullback in spending on eating out further underscores reluctance by consumers to open their wallets.
Consumer spending has been one of the major uncertainties to the growth outlook, and the latest data is increasingly suggesting that a key downside risk is eventuating. Nonetheless, household incomes have been boosted by recent stimulus, and as households choose to rebuild balance sheets, it increases scope for stronger spending down the track. We continue to expect some pick up to consumer spending, but only a mild one.
Europe: A larger-than-expected 0.6% fall in German factory orders in August has increased concerns of a recession in Europe’s largest economy, with manufacturing sector continuing to be hit by trade uncertainty.
United Kingdom: Retailing according to the BRC, declined 1.3% in the year to September, indicating that the consumer is being increasingly hit by Brexit concerns.
United States: Kansas Federal Reserve President George said that the moderation of economic growth in 2019 has been “in line with my own outlook” . George dissented from the rate cuts over the last two meetings as the US economy was doing well, and that “in current circumstances, concern about low inflation seems unnecessary”. George however, added she might rethink if she saw the consumer losing their confidence.
In contrast, non-voting member Minneapolis Federal Reserve president Kashkari presented one of the more dovish views and that he did not know yet how much more the Fed had to cut.
Today’s key data and events:
JN Current Account Aug exp ¥1208.1b prev ¥1999.9b (10.50am)
AU ANZ Job Ads Sep prev -2.8% (11.30am)
AU NAB Business Confidence Sep prev 1 (11.30am)
CN Caixin China Services PMI Sep exp 52.0 prev 52.1 (12.45pm)
US NFIB Small Business Survey Sep exp 102.5 prev 103.1 (9pm)
US PPI Final Demand Sep exp 0.1% prev 0.1% (11.30pm)
US Fed’s Evans Speaks in Chicago (4.35am)
US Fed Chair Powell Speaks in Denver (4.50am)
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