Bank of Melbourne

Morning Report

Main Themes: Asset prices remained within narrow trading ranges on Friday night. Headlines on US-China trade relations continued to be the main point of interest.


Main Themes: Asset prices remained within narrow trading ranges on Friday night. Headlines on US-China trade relations continued to be the main point of interest.

Share Markets: US share markets finished higher in Friday’s session. The S&P 500 index rose 7 points (or +0.2%) and the Dow Jones jumped 109 points (or +0.4%).

Interest rates: US 2-year treasury yields rose from 1.59% to 1.63% and the US 10-year yield ranged between 1.75% and 1.78%. Interest-rate markets are pricing only a small chance of easing at the Federal Reserve’s meeting next week.

Australian 3-year government bond yields ranged between 0.73% and 0.76% and the Australian 10-year yield between 1.07% and 1.12%. Financial markets are pricing a 20% chance of easing at the RBA’s meeting next month.

Foreign Exchange: The greenback was slightly firmer in Friday night’s trading session. The major underperformer was the GBP after weak data was published’ GBP/USD fell from 1.2928 to 1.2824.

The AUD/USD continued to trade in a very tight range and within the broad trading range it has hugged for the past few months. AUD/USD traded

The US dollar index closed up 0.2% on the day. EUR fell from 1.1087 to 1.1015. Underperformer GBP fell from 1.2928 to 1.2824 following the weak PMI data. The AUD/USD exchange rate stuck to a very narrow trading range on Friday night and within the broad familiar range it has hugged for the past few months; AUD/USD traded between 0.6778 and 0.6803. A key speech by Reserve Bank Deputy Governor Debelle tomorrow night has the potential to ruffle the AUD’s feathers. Debelle will be speaking on unconventional policies at an Australian Business Economists’ (ABE) event.

Commodities: Oil fell in Friday night’s session, iron ore was unchanged and gold also fell.

Australia: There was no key market-moving data released on Friday. Later this week, the Bureau of Statistics begins publishing partial economic indicators that will provide a firmer read on the likely outcome for Q3 GDP.

Europe: European Central Bank (ECB) President Lagarde gave her first major speech. Lagarde called for a “new mix of policy” in which investment and fiscal support compliment ECB’s accommodation amid internal and external economic headwinds.

The euro area’s flash purchasing managers’ indices (PMIs) for November posted disappointing outcomes. The manufacturing PMI remained weak at 46.6, but did lift from 45.9 in the previous month. The services PMI fell to 51.5, from 52.2 in October and underscored the vulnerability of the region.

United Kingdom: The flash PMIs for November also disappointed in the UK. The manufacturing PMI fell to 48.3 in November, from 49.6 in October. The services PMI also dropped, to 48.6, from 50.0 in November. The outcomes for these PMIs highlight the negative impact the uncertainty around Brexit is having on sentiment and economic activity.

United States: US President Trump commented that the stuttering US-China deal is “coming along very well” after an earlier appearance on television where he stated that “we have to have a much better deal” while also refraining from signing the HK special status review bill.

In other developments, a top Chinese diplomat at a G20 meeting on Saturday said the US is the world’s biggest source of instability and its politicians are going around the world baselessly smearing China.

The final outcome for the University of Michigan’s consumer sentiment survey lifted to 96.8 in November, from 95.7 for the preliminary reading. The expectations component stayed weak, although it rose to 87.3.

The Kansas Fed survey of manufacturing remained unchanged in November at a reading of -3.

There was also a batch of PMIs released for November on Friday. These indices lifted in November and beat market expectations. They also remained above the critical 50.0 level, which indicates that expansion in activity in the period ahead is likely. The manufacturing PMI increased from 50.6 to 51.6 and the services PMI lifted from 51.3 to 52.5.


Today’s key data and events:

EZ GE Ifo Business Climate Index Nov prev 94.6 (8pm)

US Chicago Fed Nat Act Index Oct prev -0.45 (12:30am)

US Dallas Fed Index Nov prev -5.1 (2:30am)


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.


Besa Deda, Chief Economist Ph: 02-8254-3251