Bank of Melbourne

Morning Report

Main Themes: With a lack of new developments on the trade front, there was little clear signal for market sentiment overnight. In local data yesterday, jobs surprisingly declined.
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Main Themes: With a lack of new developments on the trade front, there was little clear signal for market sentiment overnight. In local data yesterday, jobs surprisingly declined.

Share Markets: US shares had a mixed session, struggling to gain direction.  Nonetheless, US shares remain close to their highs, and the S&P500 eked out a 0.1% gain to another record closing high. The Dow and the Nasdaq were slightly lower. 

Interest Rates: A consolidation in US bond yields continued after lifting over the course of last week on trade deal hopes. US 10-year yields fell 7 basis points to 1.82%, declining for the third consecutive session. Yields remain well above their recent lows in early October. 

Foreign Exchange: Major currencies were also in consolidation mode. The US dollar index declined while the euro rose. The Australian dollar fell sharply after a surprising fall in jobs, and declines were extended into the overnight session.

Commodities: Oil prices edged lower on higher US crude stockpiles. Prices of other commodities, such as copper, were weighed down by weak Chinese data yesterday. Meanwhile, gold prices edged higher.

Australia: There was a net loss of 19.0k jobs in October, following a revised 12.5k increase in September. It was the worst result since August 2016. Full-time jobs fell 10.3k and there were 8.7k fewer part-time positions. The unemployment rate ticked back up to 5.3%, reversing September’s fall to 5.2%. The unemployment rate has been trending up since April this year, despite three rate cuts by the Reserve Bank (RBA). The RBA has acknowledged that spare capacity is likely to persist in the labour market for some time. That said, the result highlights the risk the unemployment rate drifts further away from the level at full employment.

China: Activity in the Chinese economy continued to weaken in October.  Industrial production growth eased from an annual rate of 5.8% in September to 4.7% in October. Retail sales growth similarly softened from an annual rate of 7.8% in September to 7.2% in October. Moreover, fixed asset investment slowed from annual growth of 5.4% to 5.2%. Recent trade tensions are continuing to weigh on economic growth, although it appears that the consumer sector is also slowing along with the factory sector.

Europe: GDP grew 0.2% in the third quarter, in line with the median estimate. However, the key surprise was that Germany expanded, although still at a paltry rate at 0.1% increase in the third quarter (expectations were for a 0.1% contraction). The better-than-expected result indicates that Germany has narrowly avoided a technical recession. Trade tensions and a slump in manufacturing have weighed on growth in Europe’s largest economy.

United Kingdom: Retail sales fell 0.1% in October, and has not seen any growth for three consecutive months. The consumer sector is continuing to be weighed down by Brexit woes.

United States: Producer prices edged up 0.4% in October, the strongest increase in five months. Core producer prices (excluding food and energy) rose 0.3%, but the annual rate eased from 2.0% to 1.6%, indicating that price pressures remain muted.

Initial jobless claims edged up from 211k to 225k for the week ending November 9. While this was the highest in five months, as a trend, job claims remain at a low level. It is not suggesting a material deterioration in the labour market, despite softening activity indicators over the past few months.  Indeed, claims are continuing to point to tightness in the labour market.

Federal Reserve Chair Powell provided further positive comments, saying that “the US economy is the star economy these days”. In regards to the outlook, he said that “there’s nothing that’s really booming that would want to bust, in other words”.

 

Today’s key data and events:

NZ BusinessNZ Mfg PMI Oct prev 48.4 (8.30am)

AU RBA's Debelle speaking in Sydney (12.30pm)

JN Industrial Production Sep final prev 1.4% (3.30pm)

EZ Trade Balance Sep prev exp €18.7bn prev €20.3bn (9.00pm)

US NY Empire Manufacturing Nov exp 6 prev 4 (12.30am)

US Import Price Index Oct exp -0.2% prev 0.2% (12.30am)

US Retail Sales Oct exp 0.2% prev -0.3% (12.30am)

US Industrial Production Oct exp -0.4% prev -0.4% (1.15am)

US Business Inventories Sep exp 0.1% prev 0.0% (2.00am)

 

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