Main Themes: The run of positive sentiment took a breather on reports that the signing of a long-awaited US-China trade deal could be delayed to December. Most asset markets were mildly risk averse. US shares were little changed, although bond yields were down. The Australian dollar was also marginally lower.
Share Markets: US stocks drifted sideways, as investors became more cautious. The rally to record highs earlier in the week paused for a second day. The Dow was flat, while the S&P500 edged up 0.1%.
Interest Rates: Yields on US treasuries fell as risk appetite waned overnight. The 10-year yields fell 4 basis points to 1.82%, and the two-year yield eased 2 basis points to 1.61%.
Foreign Exchange: Currency markets were muted as investors reassessed the latest trade developments. The US dollar was little changed, and conversely, earlier gains in the euro gave way later on. The Australian dollar was also little changed for most of the session but then edged lower upon the renewed caution in regards to trade.
Commodities: Oil prices fell on a jump in US crude stockpiles and news that the trade deal could be delayed. Gold prices rose, supported by the lift in risk aversion.
Australia: No major data to report.
Japan: Japanese services activity contracted in October according to the Jibun services PMI. The index fell to 49.7 in October from 52.8 in September, and down from a preliminary reading of 49.8. It was the first reading below 50 which indicates contraction since 2016. While the typhoon and the sales tax hike have contributed to weakness in the services sector, it provides a worrying sign of broader weakness in the economy.
Europe: Retail sales edged 0.1% higher in September, a touch above the flat result estimated by consensus. Moreover, last month’s gain was revised upwards from 0.3% to 0.6%. The annual rate therefore edged up from 2.7% to 3.1%, painting a more positive picture than suggested previously.
Factory orders in Germany were also better than expected, rising 1.3% in September exceeding estimates for a 0.1% gain. The jump could provide an early sign of a turning point for the German economy. The annual rate remains in contraction, although it eased from 6.5% to 5.4%.
New Zealand: New Zealand’s unemployment rate edged up to 4.2% in the September quarter, reversing the decline in the June quarter to 3.9%. As a trend, it appears to have stabilised over the past year or so, but at 4.2% is still pointing to a tight labour market. Job growth has nonetheless slowed, in step with weakening economic activity. Annual job growth eased to 0.9% in the year to the September quarter, the weakest in six years and well down from annual growth of 5.8% three years ago.
United States: Chicago Federal Reserve President Evans said that the US economy was “in a good place” and that policy was “in a good place”. Evans also added that “if there was a big negative shock, we’d have to respond”. Evans is a non-voting member of the Federal Reserve’s rate setting committee this year.
Today’s key data and events:
AU AiG Perf. of Construction Oct prev 42.6 (8.30am)
AU Trade Balance Sep exp $4.7bn prev $5.9bn (11.30am)
EZ German Industrial Production Sep exp -0.4% prev 0.3% (6.00pm)
UK BoE Bank Rate prev 0.75% (11.00pm)
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