Main Themes: Market sentiment turned risk-on overnight as officials from the US and China said that existing tariffs will be rolled back as part of their initial trade deal. US bond yields and stocks soared. It was a quiet night in terms of economic data releases.
The Bank of England (BOE) kept rates on hold but surprised markets with a dovish 7-2 vote.
Share Markets: US stocks jumped to fresh records overnight as news emerged of a breakthrough in US-China trade negotiations. Some of that buoyant sentiment subsequently faded as doubts crept in following a report that there was resistance to the deal in the White House. The Dow is up 0.6% and the S&P is currently 0.2% higher.
Global bourses have followed suit with gains recorded on the Euro Stoxx 50 (0.5%) and London’s FTSE 100 (0.1%).
Interest Rates: US 10-year treasury yields surged 11 basis points to 1.92% on the positive US-China trade developments. At one point they were just 5 basis points away from breaching the 2% mark for the first time since July. The curve continued to steepen with the 2-year rising 7 basis points to 1.68% and the 3-month bill rising 1 basis point to 1.56%.
Foreign Exchange: The US dollar index rose 0.2%, as US dollar notched gains against the safe-haven currencies of the euro and yen. The yuan registered its eighth consecutive daily rise against the dollar. The CNY has fallen back below the 7 marker for the last two days.
The Australian dollar rose 0.2% overnight, swept up in the risk-on mood. Yesterday’s unexpected increase in the trade surplus had little impact on the AUD which is currently around US$0.6898.
Commodities: Oil bounced back more than one percent from yesterday’s dip despite indications that the biggest OPEC producers won’t be looking to cut oil supply further. WTI futures rose US$0.8 per barrel to US$56.9. Gold prices plunged as investors moved away from safe-haven assets.
Australia: The AiG performance of construction index improved in October, rising from 42.6 to 43.9. Despite the improvement the index is holding well below 50 which points to contraction, and indicates further struggles for the industry. Construction in apartments continued to be the weakest sector, although there was an improvement in house building. Engineering and commercial construction weakened in the month.
The trade surplus unexpectedly improved from $6.6 billion in August to $7.2 billion in September. Both exports and imports were firm, rising 3.5% and 2.5%, respectively, although these followed weakness in August. The strength in exports was broadbased across resources and rural good exports. Growth in imports was mostly driven by business spending, including capital goods and fuel.
Europe: German industrial production fell 0.6% in September, below expectations of a 0.4% fall, adding further to the likelihood that Europe’s largest economy registered a technical recession in Q3.
United Kingdom: The BOE elected to keep rates on hold at its November meeting. However, two officials unexpectedly voted for a rate cut leaving the final vote at 7-2. Officials cited the increase in downside risks to the outlook and signs of a turn in the jobs market.
United States: Comments from the Chinese commerce ministry suggested that the US and China have agreed to cancel tariffs in phases. There was no official timeline given, but China’s commerce ministry spokesman Gao Feng said “Both sides have agreed to cancel additional tariffs in different phases, as both sides make progress in their negotiations.” A spokesman for the US treasury department declined to comment. The prospect of lifting the existing tariffs has caused disagreement from officials in the White House who have been staunchly opposed to the idea.
Today’s key data and events:
AU RBA Statement on Monetary Policy (11.30am)
AU Housing Finance (11.30am)
– No. Own. Occupier Sep exp 1.0%, prev 0.7%
– Value Investor Sep exp 1.5%, prev 5.7%
– Value Own. Occ. Sep exp 1.5%, prev 1.9%
CH Current Account Q3 prev US$46.2bn (~)
CH Trade Balance Oct exp US$40.1bn prev US$40.7bn
US Consumer Credit Sep prev $17.9bn (7.00am)
US Fed's Bostic speaking in New York (11.10am)
US UoM Consumer Sentiment Nov exp 95.5 prev 95.5 (2.00am)
CH CPI Oct y/y prev 3.0% (12.30pm Sat 9 Nov)
CH PPI Oct y/y prev -1.2% (12.30pm Sat 9 Nov)
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.
Nelson Aston, Economist Ph: 02-8254-1316