Main Themes: Most markets moved sideways overnight on little data or news. Investors digested a downbeat media report that suggested China was not confident that US President Trump would roll back existing tariffs.
Share Markets: US share markets ended the session broadly flat, near yesterday’s record highs. Trading was in a tight range in both the S&P500 and the Dow Jones which both recorded tiny increases from yesterday’s close. Most sectors recorded little movement, with defensive sectors such as utilities and consumer staples outperforming. Energy stocks performed the worst, in line with a fall in oil prices overnight.
Interest Rates: Volatility in the progress of US-China trade negotiations kept global bond yields under pressure. The US curve flattened overnight as the media reported that Beijing was “pessimistic” about a trade deal with the US, reportedly due to President’s Trump reluctance to roll back existing tariffs. US 10-year treasuries fell 2 basis points to 1.82% while the 3-month bill edged 1 basis point lower to 1.56%.
Australian bond yields were broadly stable overnight. The 10-year yield is currently up slightly at 1.17% and the 3-year bond yield is 0.75%. The markets continue to favour an RBA rate cut in February next year (58% probability) with a small chance of a cut in December (20% probability).
Foreign Exchange: The US dollar fell after a fresh media report once again swung momentum in sentiment surrounding the US-China trade deal. Aside from the fall following the media report, the US dollar index traded in a very tight range with little other major news or data released overnight.
The Australian dollar ended a choppy session down slightly by 0.07% against the US dollar at 0.6810. The Australian dollar has only recorded one gain in the last 7 sessions against the US dollar. Weak local data (especially last week’s labour market report) has weighed on the currency recently, while uncertainty around US-China trade negotiations has also been a factor.
The pound rose in response to a poll showing that the UK’s Conservative Party, led by Boris Johnson, moved ahead against the Labour Party in the run-up to the general election. The pound rose to a session high of 1.2985 against the US dollar, just shy of the US$1.30 mark.
Commodities: Oil futures reversed Friday’s gain as a sense of pessimism returned to US-China trade rhetoric. WTI futures slid 1.5% to US$57.7 per barrel. Gold edged higher as the risk-off sentiment crept in.
Australia: There was no major data released yesterday.
United Kingdom: The latest Reuters poll showed that Boris Johnson’s conservatives lead over the Labour Party led by Jeremy Corbyn extended to 17 percentage points. It increases the likelihood of a conservative majority after the general election due to be held on December 12. Previous elections have failed to produce a majority for either party, leading to stalemates over Brexit.
China: The People’s Bank of China (PBoC) surprised markets by lowering a key benchmark rate on Monday. It lowered the 7-day reverse repurchase rate for the first time in 4 years from 2.55% to 2.5%. The cut comes even as consumer price inflation has increased recently due to surging food prices. The move is a signal that the central bank is continuing its piecemeal stimulus approach despite the temporary consumer price pressures.
On the US-China trade dispute, a CNBC media report quoted a “government source” saying that the mood in Beijing is pessimistic towards the first phase of a US-China trade deal. Officials are reportedly concerned that a deal will not be reached due to US President Trump’s reluctance to roll back existing tariffs.
Aside from unnamed sources in media reports, official statements from both the US and China have been constructive and hint that a deal is drawing nearer.
United States: Homebuilder sentiment retreated slightly in November, but remains at a historically high level. The National Association of Home Builders Housing Market Index fell by 1 point to 70, its first fall in 5 months. Expectations for future sales rose though, and are now at the highest since May 2018.
Today’s key data and events:
AU PPI Output Q3 prev 0.5% (8:45am)
AU RBA Board Meeting Minutes (11:30am)
EZ Current Account Sep prev €26.6bn (8pm)
UK CBI Trends Survey Nov exp -30 prev -37 (10pm)
US Housing Starts Oct exp 1320k prev 1256k (12:30am)
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, Chief Economist Ph: 02-8254-1316