Main Themes: Markets were relatively quiet as US shoppers embraced Black Friday. A paucity of top-tier economic data left equity markets down slightly on lingering negative sentiment around trade. Interest rates and currencies were mixed, but turned slightly more risk averse.
Share Markets: Stocks were mostly lower across the board on relatively light volume. Trading was lightest compared to normal in the US where many investors chose to take the day off between the Thanksgiving holiday and the weekend. The Dow Jones and S&P500 both slipped 0.4%. Both were only open for half of the day.
European stocks were flat, as investors shrugged off faster-than-expected inflation. In the UK, the FTSE fell 0.95% after a poll showed the conservative party’s lead narrowed.
Interest Rates: US bond yields were broadly flat on Friday after markets were closed on Thursday due to the Thanksgiving holiday. Markets had been focused on US-China trade relations after President Trump signed a deal supporting protestors in Hong Kong and China promised to retaliate. The 10-year treasury yield edged up 1 basis point to 1.78%. At the shorter end of the curve, the 2-year and 3-month yields both fell 2 basis points, to 1.6% and 1.59% respectively.
Australian yields were unchanged with the 10-year bond at 1.04% and the 3-year at 0.67%. Markets are pricing in a 59.3% chance of a cash rate cut to 0.5% by February next year.
Foreign Exchange: The US dollar index edged slightly lower by 0.1% on Friday on limited trading as investors weighed further trade uncertainty. Despite teetering on trade-related news recently, the index rose 0.95% over the month in November, as relatively solid US economic data has supported the currency. The Australian dollar is currently around 0.6771, extending its slide against the US dollar.
Commodities: Oil prices slumped on Friday as concerns over US-China trade relations lingered. WTI futures were particularly hard-hit, with markets closed on Thursday. WTI futures fell 5% to $US55.17 per barrel. Despite Friday’s fall, oil prices are up over the month, having been supported by expectations that OPEC will take action to stem global supply. Gold prices rose as China promised to retaliate over President Trump’s signing of a bill backing Hong Kong pro-democracy protestors.
New Zealand: Building approvals contracted in October by 1.1%. The latest fall comes after a 7.4% rise in the previous month though, and the trend of construction activity remains robust. The latest fall was driven by a decline in “other dwellings”, which includes apartments. House approvals registered strong growth, rising 7.3% over the month.
Australia: Credit growth in the private sector slowed further in October, to just a 0.1% monthly pace. It was the weakest in four months. Much of the slowdown reflected a 0.1% contraction in business credit, the first decline since January 2017 and corresponds with fragile business confidence and the notable softening in business investment. Housing credit growth picked up a touch from 0.2% growth in September to 0.3% in October. While some pick up was expected given the recovery in the housing market and the lift in new lending, housing credit growth remains subdued. It suggests that householders are using savings from lower interest rates to help pay down their mortgages. The soft pace of credit growth is consistent with weak growth in the domestic economy. With businesses feeling cautious given the global environment and ongoing headwinds for the consumer, this reluctance to invest and spend is likely to continue. Nonetheless, rate cuts and the prospect of more will provide some support and in time, this is likely to flow through to borrowing, particularly to the housing sector.
China: An official survey of Chinese firms jumped unexpectedly in November, suggesting that government support is beginning to have an impact. The National Bureau of Statistics released PMI results for manufacturing and non-manufacturing firms on Saturday, both of which showed an expansion in activity. The manufacturing PMI rose to 50.2 in November, it’s first reading above the neutral 50 level since April. Non-manufacturing confidence rose to 54.4, the highest since March. Despite the latest improvement, both gauges remain below their long-run averages.
India: India’s economy expanded 4.5% year-on-year in the September quarter, slowing from 5% in the previous quarter. It was the slowest pace of growth since 2013. The slump was driven by a slowing in capital investment growth to just 1%, despite five rate cuts from the Reserve Bank of India (RBI).
Modi’s government was re-elected for a second term in May and has been pushing for economic reforms, targeting GDP growth of 8-9%.
Europe: Eurozone inflation expanded at a faster rate than expected in November, according to first estimates. The CPI index rose 1% over the year in November, up from a 0.7% increase in October. Core CPI, which excludes food and energy prices, saw a 1.5% increase, up from 1.2% in October. Inflation remains well below the European Central Bank’s (ECB) target of just under 2%. It is expected to trend closer towards that target slowly over the medium term.
Separate data showed that the unemployment rate fell to 7.5% in October, its best outturn since July 2008. Despite employment growth slowing recently, the number of unemployed shrank by 31,000 to 12.334 million.
Japan: Industrial production fell by more than expected in October as the increase in the sales tax took its toll. Output dropped 4.2% on the month in October, wiping out a 1.7% rise in September. The fall was more than expected, signalling weak external demand. A typhoon also hampered output over the period.
Canada: GDP growth slowed to an annualised 1.3% in Q3, according to official data. Slower exports weighed on growth however the real estate sector and consumer spending remained bright spots.
United States: There was no major economic data released in the US.
Today’s key data and events:
AU AiG Perf of Mfg Index Nov prev 51.6 (8.30am)
NZ Terms of Trade Q3 exp 1.0% prev 1.6% (8.45am)
AU CoreLogic House Prices Nov exp 1.8% prev 1.4% (10am)
JN Capital Spending Q3 y/y exp 5.0% prev 1.9% (10:50am)
AU MI Inflation Expectations Nov prev 0.1% (11am)
AU ANZ Job Ads Nov prev -1.0% (11:30am)
AU Building Approvals Oct exp -2.0% prev 7.6% (11:30am)
AU Business Indicators Q3 (11:30am)
- Company Profits exp -0.5% prev 4.5%
- Inventories exp -0.5% prev 0.9%
CH Caixin Mfg PMI Nov exp 51.5 prev 51.7 (12:45pm)
US Markit Manufacturing PMI Nov exp 52.2 prev 52.2 (1:45am)
US ISM Manufacturing PMI Nov exp 49.2 prev 48.3 (2am)
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, Economist Ph: 02-8254-1316