Main Themes: US-China trade deal developments continues to dominate market behaviour. A fresh wave of M&A activity in equity markets and a closely-watched US manufacturing survey also influenced asset prices overnight.
Share Markets: US share markets climbed to record highs, driven by a wave of M&A activity and investor optimism that a China-US trade deal is in reach. China on the weekend said that it will tighten intellectual property rules, a move which was seen by investors as boosting the chances of a US-China trade deal being inked. In M&A activity, Charles Schwab Corp. agreed to buy TD Ameritrade Holding Corp. and LVMH purchased US jeweller Tiffany & Co. At the time of writing, the Dow Jones was up 144 points (or +0.5%) and the S&P 500 index was up 19 points (or +0.6%). Both indices are trading at all-time highs.
Interest rates: Financial markets are relatively optimistic about phase one of a US-China trade deal happening. However, until a deal is inked, some uncertainty will continue to prevail. This uncertainty is helping to underpin demand for government bonds. US government bond yields, which move inversely to price, each fell by 1 basis point for the 2-year and 10-year maturities.
Foreign Exchange: The US dollar index sold off early in last night’s trading session, but recovered ground after the Dallas Fed manufacturing beat market expectations.
GBP/USD recovered overnight, after falling considerably through the week last week. GBP/USD rose from an overnight low of 1.2841 to an overnight high of 1.2912.
The Australian dollar depreciated through much of the overnight session, falling from near the USD0.6800 handle to an overnight low of 0.6768. AUD/USD has moved modestly off this overnight low at the time of writing.
AUD/USD is likely to consolidate last night’s move and tread water ahead of a key speech on unconventional policies from RBA Governor Phillip Lowe tonight.
Commodities: The price of West Texas Intermediate oil was slightly firmer. Meanwhile, the gold price declined.
Australia: There was no major economic data released yesterday in Australia. All ears are on a speech by Reserve Bank Governor Phillip Lowe tonight. Lowe is speaking on unconventional policies.
United States: Economic activity in Texas's manufacturing sector recovered in November. The Dallas Fed manufacturing index rose to -1.3 in November, from -5.1 in October. The outcome was also better than market expectations of -3.8.
Interestingly, the sub-index measuring uncertainty regarding companies’ outlooks moved up to 17.1, which is a reading well above average.
In other data, the Chicago Fed national activity index deteriorated in October to -0.71, from -0.45 in September.
Today’s key data and events:
NZ Retail Sales Ex Inflation Q3 exp 0.5% prev 0.2% (8:45am)
AU RBA Deputy Governor Guy Debelle Speech (10:50am)
AU RBA Governor Phillip Lowe Speech (8:05pm)
US Trade Balance Oct exp –US$71.0bn prev –US$70.5bn (12:30am)
US Wholesale Inventories Oct exp 0.1% prev -0.4% (12:30am)
US House Price Purchase Index Q3 prev 1.0% (1am)
US FHFA House Price Index Sep exp 0.3% prev 0.2% (1am)
US CoreLogic 20-City House Prices Sep exp 0.3% prev -0.16% (1am)
US Richmond Fed Mfg Index Nov exp 5 prev 6 (2am)
US New Home Sales Oct exp 707k prev 701k (2am)
US CB Consumer Confidence Nov exp 127.0 prev 125.9 (2am)
US Fed’s Brainard Discusses Policy Framework Review (5am)
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