Main Themes: Sentiment continued to be supported by positive developments in trade as well as hopes that a no-deal Brexit would be avoided. Shares and bond yields were higher. The Australian dollar rose for a fourth straight session.
Share Markets: Hopes that trade negotiations were moving in the right direction were supportive of share markets. Shares in both Europe and the US gained across all major indices. The Dow lifted 0.2% and the S&P500 rose 0.7%. The S&P500 is just 0.6% down from its record high hit in July.
Interest Rates: Stronger risk appetite helped to lift bond yields. US 10-year yields rose 5 basis points to 1.80%. Easing concerns of a no-deal Brexit also continued to dampen demand for safe-haven bonds.
Foreign Exchange: The US dollar index trended sideways, although JPY weakened as sentiment improved. Sterling touched above US$1.30 before slightly paring gains, despite the latest Brexit developments. Markets are increasingly seeing the odds of a no-deal Brexit fading, which continues to support GBP. Euro is similarly holding onto recent gains. The Australian dollar edged higher, extending a rally over four days straight, as political risks have eased. AUD is trading at US$68.7 US cents this morning.
Commodities: The more positive risk environment did not extend to oil prices. Russia said that it did not meet its supply reduction commitment in September because of an increase in natural gas condensate output ahead of winter. Lingering concerns about global demand also likely weighed on prices. Gold prices however, fell on the more positive developments on trade.
Global: Rhetoric in regards to trade developments were mostly positive.President Trump the trade deal with China was “coming along very well”. US Trade Representative Lighthizer confirmed that the aim was to finalize the first phase of the deal in time for the Asia-Pacific Economic Corporation meetings in Chile on November 16-17, but that there were some outstanding issues to resolve. Comments from White House economic advisor Larry Kudlow was also positive indicating that the 15% tariffs on consumer good imports from China could be withdrawn if talks go well. At the same time, China sought $2.4 billion in retaliatory sanctions against the US for non-compliance with a WTO ruling in July.
Japan: Exports fell for the 10th straight month in September as slowing external demand and global trade uncertainty continues to take its toll. The adjusted trade deficit was ¥97.2 billion. Exports fell 5.2% over the year while imports fared a little better, falling 1.2%. Both figures were an improvement on August’s outturn, when exports plunged 8.2% and imports were down 12%. The reading sets a sombre tone ahead of the Bank of Japan’s review on the impact of the global slowdown’s effect on prices and growth due later this month.
The All Industry Activity Index points to further malaise. It was unchanged over the month in August after registering a 0.2% increase in July.
China: New home prices rose 0.53% in September, slightly below the 0.58% monthly gain recorded in August. The index, which tracks newly built house prices across 70 cities, suggests that the real estate market is gradually cooling, although growth remained elevated at 8.6% year-on-year in September compared with 9.1% in August. The People’s Bank of China (PBOC) kept its 1 and 5 year prime rates unchanged in October at 4.2% and 4.85% respectively.
Australia: No major data to report.
New Zealand: Credit card spending fell by 0.1% month-on-month in September, following a 2.5% surge in August. Economic momentum has been lacking in recent months. CPI came in at 1.5% year-on-year in Q3, below the RBNZ’s 2% target.
United Kingdom: The latest in the Brexit debacle involved House of Commons Speaker stopping a vote on the Brexit deal, which was brought forward again by Johnson’s government, saying that current circumstances are the same as on Saturday, and it would be “repetitive and disorderly” to be debated again. An amendment called the Withdrawal Agreement Bill provides that all necessary Brexit legislation is passed first.
October house prices rose 0.6% over the month, according to data from Rightmove. London recorded a large 2.4% monthly gain but remains 1.1% lower in year-on-year terms. Nationally, house prices were 0.2% lower over the year in October.
Today’s key data and events:
EZ ECB Publishes Bank Lending Survey (7pm)
UK Public Sector Net Borrowing Sep £8.9bn prev £5.8bn (6:30pm)
US Richmond Fed Manufacturing Index Oct exp -7 prev -9 (1am)
US Existing Home Sales Sep exp 5.45m prev 5.49m (1am)
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