Bank of Melbourne

Morning Report

Main Themes: There was conflicting news on the US-China trade deal overnight, which kept the major currencies, US government bond yields and US share market indices in moderate trading ranges.
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Main Themes: There was conflicting news on the US-China trade deal overnight, which kept the major currencies, US government bond yields and US share market indices in moderate trading ranges.

Share Markets: The main share market bourses in the US are lower, amid conflicting signals on the progress of the Us-China trade deal. At the time of writing, the Dow Jones was down 18 points (or -0.1%) and the S&P 500 index was off a point (or unchanged in daily percentage terms).

Interest rates: US 2-year treasury yields rebounded off 1.55% yesterday afternoon and continued to recover to close at 1.60% overnight. US 10-year yields similarly rose and closed 3 basis points higher at 1.77%. Interest-rate markets are pricing only a 5% chance of easing at the Federal Reserve’s meeting next month and a terminal rate of 1.20%.

Australian 3-year government bond yields rose from 0.73% to 0.76% and the Australian 10-year yield from 1.08% to 1.12%. Interest-rate markets are pricing a 20% chance of easing at the RBA’s board meeting next month and a terminal rate of 0.48%.

Foreign Exchange: The major currencies continued to trade in very narrow ranges overnight. The USD index was a touch higher and the AUD/USD kept to 0.6790-0.6814 (with a slightly wider trading range over the past 24 hours).

Commodities: Oil rose overnight while the price of gold fell.

Australia: There was no major economic data released yesterday.

United Kingdom: The Labour Party released its Election Manifesto, which set out a dramatic agenda across the economy.

United States: Existing home sales rose by 1.9% in October to an annualised rate of 5.46 million units. The previous month’s outcome was also revised higher, from 5.36 million to 5.38 million. Low mortgage rates continue to underpin demand for dwellings.

The Conference Board (CB) leading index fell 0.1% in October, representing the third straight monthly decline. It is the worst string of declines since 2016. The gauge now also has a negative six-month growth rate for the first time since May 2016. The CB said October’s outcome indicates an annualised growth rate of just below 2% in Q4.

In other data, the Philadelphia Fed survey rose to 10.4 in November, from 5.6 in October. The result was well above market expectations, but both the employment and new order components fell.

On the trade front, news reports suggest progress on the China-US trade deal is mixed. The positive signs on trade include China’s Liu He inviting Robert Lighthizer to Beijing for further talks later this month. There are also reports that Washington will likely postpone new tariffs scheduled for December even if there's no deal by then. However, on the flip side, US President Trump may as soon as later today sign into law a bill supporting Hong Kong's protesters, a decision Xinhua attacked again.

 

Today’s key data and events:

AU PMI Manufacturing Index Nov prev 50.0 (9am)

AU PMI Services Index Nov prev 50.8 (9am)

AU PMI Composite Index Nov prev 50.0 (9am)

JN Core CPI Oct y/y exp 0.4% prev 0.3% (10:30am)

EZ Markit PMIs for Mfg, Services & Composite Nov (8pm)

UK Markit PMIs for Mfg, Services & Composite Nov (10:30pm)

US Markit Services PMI Nov exp 51.0 prev 51.0 (1:45am)

US Markit Mfg PMI Nov exp 51.4 prev 51.3 (1:45am)

US Markit Composite PMI prev 50.9 (1:45am)

US UoM Consumer Sentiment Nov Final exp 95.7 prev 95.7 (2am)

US Kansas City Fed Mfg Activity Nov exp -2 prev -3 (3am)

 

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