Bank of Melbourne

Morning Report

Main Themes: There was little fresh news to ruffle financial markets overnight.
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Main Themes: There was little fresh news to ruffle financial markets overnight.

Share Markets: US blue chips Boeing and Caterpillar were the centre of attention overnight in the land of equities. Boeing’s results were overshadowed by news surrounding the 737 Max. Meanwhile, Caterpillar disappointed with its first decline in quarterly profit since 2016; forecasts were also cut and blamed on “economic uncertainty”.

The key US share-market bourses finished moderately higher, as investors sifted through those and other earning reports. The Dow Jones ended up 0.2% and the S&P 500 also closed firmer, by 0.3%.

Interest Rates: US 2-year treasury yields bounced off an intraday low of 1.55% to 1.58%. The US 10-year yield eased from 1.76% to 1.73%, before closing at 1.77%. Interest-rate markets are pricing 23 basis points of easing at the US Federal Reserve’s October 19 meeting and a terminal rate of 1.21%.

Australian 3-year government bond yields fell from 0.75% to 0.72% and the Australian 10-year yield dropped from 1.12% to 1.08%. Interest-rate markets are pricing 6 basis points of easing at the Reserve Bank’s November 5 meeting and a terminal rate of 0.48%.

Foreign Exchange: The US dollar index moved modestly lower in trade this morning. EUR/USD ranged between 1.1105 and 1.1140. The British pound was also mostly range bound against the US dollar between 1.2845 and 1.2922. The Japanese yen underperformed; USD/JPY rising from 108.25 to 108.70. The AUD/USD exchange rate consolidated the previous day’s decline, trading between 0.6835 and 0.6850 overnight. The outperformer was the NZD and it partly retraced yesterday’s decline, rising from 0.6386 to 0.6420. Finally, AUD/NZD extended the week-old decline from 1.0700 to 1.0666.

Commodities: Oil moved above US$55 a barrel in New York for the first time in three weeks after a surprise drop in US crude supplies. Nationwide inventories fell by 1.7 million barrels last week and gasoline stocks shrank more than forecast, as consumption hit a 28-year high. Moreover, imports of foreign crude slumped to the lowest in more than two decades, according to the Energy Information Agency (EIA).

Australia: Skilled vacancies fell by 0.7% in September, dropping for the ninth consecutive month, according to DEWR. This data further adds to signs of a moderation in employment growth ahead.

Eurozone: The European Central Bank (ECB) meet tonight. The ECB is expected to leave policy unchanged. A key focus for markets surrounds the resumption of the asset purchase program given the reported disagreement within the Governing Council. Markets will also be looking for clarity on how the ECB will manage self-imposed constraints around the issuer limit and capital.

This meeting will also be Mario Draghi’s last meeting as ECB President, marking the end of an era. Draghi cut rates two days after his tenure began and went on to live up to his pledge in 2012 to do “whatever it takes” to hold the euro area together. Former Chair of the International Monetary Fund (IMF), Christine Lagarde, will take over from Draghi.

New Zealand: The trade deficit narrowed from NZ$1.6 billion in August to $1.2 billion in September. Stronger diary and meat exports drove the improvement  in the month.

United Kingdom: Unnamed “officials” have stated to financial media that the European Union (EU) will likely respond tomorrow to the UK’s requested Brexit extension from October 31 to January 31.

United States: US President Trump lifted recently imposed sanctions against Turkey, citing the cease-fire agreement with Kurdish forces in Syria brokered by Russia. Trump said penalties would be reimposed if Erdogan's forces resume attacks on the Kurds.

 

Today’s key data and events:

EZ Markit Mfg PMI Oct exp 46.0 prev 45.7 (7pm)

EZ Markit Services PMI Oct exp 51.9 prev 51.6 (7pm)

EZ ECB Monetary Policy Meeting prev 0.0% (10.45pm)

US Durable Goods Orders Sep exp -0.7% prev 0.2% (11.30pm)

US Markit Manufacturing PMI Oct exp 50.9 prev 51.1 (12.45am)

US Markit Services PMI Oct exp 51.0 prev 50.9 (12.45am)

US New Home Sales Sep exp -1.6% prev 7.1% (1am)

US Kansas City Fed Manufacturing Oct exp -4 prev -2 (2am)

 

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.

 

Besa Deda, Chief Economist  Ph: 02-8254-3251