Bank of Melbourne

Morning Report

Main Themes: There were thin trading conditions overnight with some US markets closed for Veterans Day holiday. Attention was on the UK with GDP data showing that the UK avoided a recession in Q3. However, UK growth still remains fragile amid uncertainty related to Brexit.
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Main Themes: There were thin trading conditions overnight with some US markets closed for Veterans Day holiday. Attention was on the UK with GDP data showing that the UK avoided a recession in Q3. However, UK growth still remains fragile amid uncertainty related to Brexit.

Share Markets: US share markets were mostly lower amid concern that a preliminary trade deal with China remains elusive. Trading was thinner than usual because of Veterans Day holiday. At the close, the Dow Jones was 10 points higher (or flat in daily percentage terms) and the S&P 500 index was 9 points weaker (or -0.3%).

Interest Rates: US treasury physical markets were closed overnight, but futures did trade; the US 10-year bond futures yield ranging between 1.90% and 1.95%. Interest-rate markets are not pricing a rate cut at the Federal Reserve’s December meeting.

Australian 3-year government bond yields round-tripped from 0.87% to 0.85% and back. And Australian 10-year yields dipped from 1.30% to 1.27%, before bouncing to close at 1.30%. Interest-rate markets are pricing a 15% chance of an easing at the RBA’s December meeting and a terminal rate of 0.58%. The current RBA cash rate is 0.75%.

Foreign Exchange: The Australian dollar eked a narrow range overnight amid thin trading conditions. The AUD/USD exchange rate kept to 0.6847-0.6870.

Commodities: Iron ore fell 3.6% to a 10-month low of US$80 per tonne amid expectations of ample supply.

Australia: There was no major economic data released locally yesterday.

New Zealand: Credit card spending retreated in October, following strong gains in the previous two months. The value of retail spending through cards fell 0.6% over the month, but remain 1.6% higher compared with a year ago. Wages growth and rising house prices have boosted consumer spending recently. The market is split about whether or not the Reserve Bank of New Zealand (RBNZ) will cut rates tomorrow.

Japan: Data for machine orders, which are a leading indicator for capital expenditure, unexpectedly fell in September. Core machine orders fell 2.9% in September, suggesting that the softening global outlook is impacting the export-reliant manufacturing sector.

Separately, data from the Ministry of Finance showed that the current account surplus narrowed to ¥1.49 trillion in September from ¥1.72 in August.

United Kingdom: The UK economy has avoided falling into recession in the third quarter, but official figures show annual growth has dropped to its lowest pace in almost a decade.

GDP rose 0.3% in Q3, after contracting by 0.2% in Q2. Services, construction, consumer spending and government spending contributed to growth in the quarter. But manufacturing failed to grow and the quarterly figure of 0.3% came in lower than expected by the Bank of England who had forecast 0.4% growth.

Furthermore, the pick-up in the third quarter numbers may slightly exaggerate the strength in the economy; some activity was likely to have been brought forward before October 31. The final quarter of 2019 could be weaker, as stockpiles continue to be run down amid continued uncertainty about the outcome of the general election and Brexit.

On a year ago, growth slowed to 1.0% in Q3, from 1.3% in Q2. Q3’s annual pace is the slowest in 9½ years.

In other data, industrial production fell 0.2% in September, after a decline of 0.7% in August. The annual rate improved modestly, but remained in decline (at 1.4%).

Brexit Party leader Farage said that they would not stand in existing Conservative seats. However, this still means that votes may be split in marginal seats. The news reduced the market’s concerns over another dysfunctional minority or a hard-left Labour led coalition.

United States:  There was no major economic data released overnight.

 

Today’s key data and events:

AU NAB Business Survey (11:30am)

   Confidence Oct prev 0

   Conditions Oct prev 2

JN Machine Tool Orders Oct y/y prev -35.5% (5pm)

UK Jobless Claims Change Oct prev 21.1k (8:30pm)

UK ILO Unemployment Rate Sep exp 3.9% prev 3.9% (8:30pm)

EZ ZEW Survey Expectations Nov exp -13.0 prev -22.8 (9pm)

US Fed’s Clarida Speaks on Monetary Policy (9:30pm)

US NFIB Small Business Survey Oct exp 102.0 prev 101.8 (10pm)

US Fed’s Harker Speaks in New York (4:55am)

 

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