Bank of Melbourne

Morning Report

Main Themes: Attention continued to be on the latest political dramas. Last night’s focus was on the UK, after Boris Johnson’s Brexit timeline was defeated. US shares and bond yields fell in the wake of the vote. The euro, sterling and Australian dollar also weakened.
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Main Themes: Attention continued to be on the latest political dramas. Last night’s focus was on the UK, after Boris Johnson’s Brexit timeline was defeated. US shares and bond yields fell in the wake of the vote. The euro, sterling and Australian dollar also weakened.   

Share Markets: Earlier gains gave way late in the session, after the vote in UK parliament. While the implications of Brexit has limited influence on the US equity market, the result highlights the ongoing heightened political uncertainty in the global economy. The Dow edged 0.2% lower, while the S&P500 fell 0.4%. 

Interest Rates: The risk averse mood brought down bond yields. Weaker-than-expected US housing data may have also weighed on yields. The 10-year bond yield fell 4 basis points to 1.76%.

Foreign Exchange: The US dollar index edged higher, mostly on weakness in euro and sterling.  GBP touched US$1.30, but then fell after UK parliament voted against Johnson’s tight Brexit timetable. Euro also came under downward pressure on the Brexit uncertainty.  The Australian dollar fell as risk appetite weakened. 

Commodities: Reports that OPEC and its allies were considering cuts to crude supply was supportive of oil prices.

Australia: No major data to report.

United Kingdom: UK parliament voted 329 to 299 in support of legislation in relation to Johnson’s Brexit deal. Another vote however, went against Johnson’s timetable (322 to 308) which was needed for Johnson’s Brexit deal to be in place occur by October 31. The EU has yet to respond to the letter, which Johnson was forced by parliament to submit over the weekend, requesting a delay to the October 31 Brexit deadline.   European Council President Donald Tusk has said that they were treating the request for the extension “in all seriousness” and that “a no-deal Brexit will never be our decision”.

United States: The Richmond fed manufacturing index bounced from -9 in September to 8 in October, the highest in four months. While the index has been volatile month-to-month, it might provide an early signal of stabilising in manufacturing.

Existing home sales fell 2.2% in September, larger than the median estimate for a 0.7% fall. September’s drop more than reversed a 1.5% gain in the previous month. It suggests that the housing market response to lower mortgage rates has been slow. Sales are up from a low point in January, but  there is not yet evidence of a meaningful recovery in the housing.

 

Today’s key data and events:

 

NZ Trade Balance Sep exp -NZ$1.4bn prev –$1.6bn (8.45am)

AU RBA Assistant Governor Kent speaks (9.20am)

AU DEWR Skilled Vacancies Sep prev -0.1% (11am)

US FHFA House Prices Aug prev 0.4% (12am)

EZ Consumer Confidence Oct exp -6.8 prev -6.5 (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