Bank of Melbourne

Morning Report

Main Themes: There was little clear direction in market sentiment over night as investors await for further news on trade negotiations. US economic data was mildly positive. Locally, retail spending continued to disappoint, bringing down the Australian dollar.
Share

Main Themes: There was little clear direction in market sentiment over night as investors await for further news on trade negotiations. US economic data was mildly positive. Locally, retail spending continued to disappoint, bringing down the Australian dollar.

Share Markets: US shares trended sideways, although key indices finished slightly higher. The Dow closed 0.1% higher, and the S&P500 edged up 0.2%. The Nasdaq was also up 0.1%.

Interest Rates: Bond markets were encouraged by the run of US economic data, particularly on jobs. US 10-year yields edged 3 basis points higher to 1.80%.

Foreign Exchange: Meanwhile, the US dollar index weakened, probably reflected a stronger euro and sterling. Hopes that the Conservatives will win a majority in the election December 12 suggests some greater clarity over Brexit and bolsters chances that Johnson’s withdrawal agreement would be passed. The Australian dollar slipped yesterday after retail spending continued to disappoint, and extended its slide over the session.

Commodities: Oil prices were little changed after jumping in the previous session. Prices are being supported by an agreement by OPEC and its allies to deepen production cuts. Gold prices edged higher. 

Australia: Retail sales registered another soft outturn in October, adding even further doubt that consumer spending will recover. The value of retail sales was unchanged over the month in October after increasing 0.2% in September. On an annual basis, the pace of growth fell to 2.1%, the weakest rate of growth in two years. The latest data show that consumers have so far chosen to save the increase to their disposable incomes. The repair of household balance sheets underway and the marked recovery in housing prices suggests an improvement in retailing growth is in store over the coming year. However, this recovery is expected to be muted and further stimulus measures are likely to be required.

The pullback in commodity prices, particularly for iron ore, have put a dent in the trade surplus in October. The surplus narrowed to $4.5 billion, which was the smallest in ten months. Exports fell 5.1% in October, the largest monthly fall since January 2017, which was driven by sharp declines in resource commodity exports. Imports rose a smaller 0.4% in the month, and remain subdued reflecting soft domestic demand.

Europe: German factory orders slipped 0.4% in October, pointing to further sluggish activity in the industrial sector and casting doubts over whether Europe’s largest economy  from a slump.

Other news for the broader euro area was better – it was confirmed that the zone expanded in the September quarter, although at just 0.2%.

That said, retail sales fell 0.6% in October,  the third decline in four months and provides an early sign that the economy is continuing to struggle in the final quarter of the year. 

United States: Initial jobless claims edged down 10k to 203k for the week ending November 30. There might been some seasonal factors impacting the data given Thanksgiving holiday was later than usual, however claims continue to point to tightness in the labour market.

Factory orders were in line with expectations, rising 0.3% in October. It was the first increase in three months. However, as a trend appear to be broadly weighed down by the uncertainties about trade and weak business confidence. Nonetheless, there are signs of improvement in business spending - durable good orders rose modestly, lifting 0.5%.

US House of Representatives speaker Nancy Pelosi has said that she has asked a House committee to draft articles of impeachment against President Donald Trump. If the House passes articles of impeachment, it would lead to a trial in the Senate on whether to convict Trump and remove him from office.

 

Today's key data and events:

AU AiG Perf of Construction Nov prev 43.9 (8.30am)

EZ Industrial Production Oct prev -0.6% (6.00pm)

US Non-farm Payrolls Change Nov exp 185k prev 128k (12.30am)

US Unemployment Rate Nov exp 3.6% prev 3.6% (12.30am)

US Average Hourly Earnings Nov prev 0.2% (12.30am)

US UoM Consumer Sentiment Dec (2.00am)

US Consumer Credit Oct prev $9.5bn (7.00am, Sat 7 Dec)

CH Trade Nov exp $43.9bn prev US$42.81bn (Sun, 8 Sep)

        Exports y/y prev -0.9%

        Imports y/y prev -6.4%

 

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.

 

Janu Chan, Senior Economist Ph: 02-8253-0898