Main Themes: Financial markets were again mostly stuck to narrow trading ranges overnight, ahead of a key US Federal Reserve meeting next week. The European Central Bank met and left policy on hold and the UK Prime Minister called for an early election.
Share Markets: US share markets were mixed in trade overnight after a raft of earnings reports. The S&P 500 index closed 6 points higher (or +0.2%) and the Dow Jones finished 28 points lower (or -0.1%).
Interest Rates: US 2-year treasury yields remained in a narrow range of 1.55% and 1.58%, as investors chose to consolidate positions ahead of the US Federal Reserve meeting next week.
It was a similar range-bound story for the US 10-year yield (a range of 1.74% and 1.77% was maintained).
Markets are almost fully priced for the US Federal Reserve to deliver a third rate cut next week.
Australian 3-year government bond yields fell from 0.73% to 0.70% and the Australian 10-year yield declined from 1.10% to 1.05%. Interest-rate markets are pricing 5 basis points of easing at the November 5 RBA meeting and a terminal rate of 0.48% (RBA cash rate currently at 0.75%).
Foreign Exchange: The Australian dollar trended modestly lower against the US dollar during overnight trade, moving to a low of 0.6811. For much of this week, the AUD has faced selling pressures. This week locally has seen a dearth of data. The AUD, therefore, has taken much of its direction from offshore influences. This is likely to continue until the middle of next week when inflation data is slated for release.
Commodities: Oil and gold advanced during trade last night.
Australia: There was no major economic data released yesterday.
Eurozone: The European Central Bank (ECB) policy remained on hold, as widely expected; the deposit rate remained at -0.5% and the asset purchase program was affirmed to start on November 1 at a pace of €20 billion per month. It was ECB President Draghi’s last meeting, ending his 8-year presidency. In Draghi’s press conference, he said downside risks are prominent, but the euro area will grow in the second half.
The Eurozone flash purchasing managers’ indices were a mixed bag. The services and composite indices improved modestly and stayed above the important 50.0 level, but the manufacturing index stayed unchanged at 45.7. Manufacturing activity is likely to continue to contract in the period ahead, based on the PMI outcome.
Japan: The purchasing managers’ indices (PMIs) fell across manufacturing, services and composite in October, from the previous month. The PMI for manufacturing and composite sits below 50.0, indicating a contraction in activity is likely in the period ahead.
United Kingdom: UK Prime Minister Boris Johnson called for an early election on December 12. Johnson said a motion to trigger an early poll will be put before lawmakers on Monday; it requires the support of two-thirds of Parliament to pass.
United States: Durable goods orders fell by 1.1% in September and the annual rate of decline deepened further in September, to 5.4%, which is the biggest annual drop since the middle of 2016. A key measure of business investment in this release is the data for core capital orders non-defence and excluding aircraft & parts; this measure fell 0.5% in September. This data underscores that heightened global risks are darkening the outlook for business investment.
New home sales fell by 0.7% in September to an annual rate of 701k units. Low inventories continue to weigh on sales even as prices recorded the biggest monthly fall in five years in September (down 7.9%).
The PMIs for manufacturing, services and composite improved in October and are all above 50.0, indicating ongoing growth in the period ahead. The manufacturing PMI rose by 0.4 points to 51.5, the services PMI increased 0.1 to 51.0 and the composite PMI lifted by 0.2 points to 51.2.
The final piece of data released overnight in the US was the Kansas City Fed business survey. The main reading for it deteriorated slightly in October to -3, from -2 in September. The forward-looking components also slipped in the month.
US Vice President Pence’s speech about China criticised China’s behaviour relating to human rights and security, but also sought greater engagement with Beijing. Pence said the US remains optimistic a trade deal can be reached, a day before negotiators talk about progress toward agreeing on a phase one accord.
Today’s key data and events:
JN Machine Tool Orders Sep Final y/y prev -35.5% (5pm)
US UoM Consumer Sentiment Oct Final exp 96.0 prev 96.0 (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.
Besa Deda, Chief Economist Ph: 02-8254-3251