Bank of Melbourne

Morning Report

Main Themes: Global equity markets rose on Friday following stronger-than-expected US jobs growth. Trade data from China released over the weekend show that the trade war is continuing to dampen Chinese exports.
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Main Themes: Global equity markets rose on Friday following stronger-than-expected US jobs growth. Trade data from China released over the weekend show that the trade war is continuing to dampen Chinese exports.

Share Markets: US equity markets jumped following the release of data showing continued robustness in the labour market. Both US indices and the MSCI’s all-country global index neared their record highs. The Dow Jones rose 1.2% and the S&P500 increased 0.9%. The MSCI all-country index increased 0.8% to 548.12, just shy of its all-time record of 550.63.

Interest Rates: US treasury yields rose following the release of non-farm payrolls data, which showed strength in the US labour market. The 10-year bond yield increased 5 basis points 1.84% while the 2-year yield rose 4 basis points to 1.62%. Markets are now pricing in a 0% chance of a hike at this week’s FOMC meeting.

Foreign Exchange: The US dollar rose modestly, ending five straight days of losses. The robust jobs report provided some respite from the slew of negative data last week, with the outlook for the economy still cautious. The Australian dollar is steady at around $US0.6824 this morning.

Commodities: Oil prices rose as further details of the supply cut from OPEC+ emerged.  In the short term, there will be a quota reduction in the first quarter of 2020, with Russia to cut 70,000 barrels of the total 500,000 barrel cut. The cartel will hold another meeting in March to discuss what to do next. WTI futures are currently at US$59.2 per barrel.

Copper increased by the most in a month, driven by solid US jobs growth and consumer sentiment data.

Australia: The AiG performance of construction index fell to a four-month low of 40.0 in November. The index has been in contraction territory (below 50) for 15 consecutive months.  There was further weakness in apartment construction although home building is stabilising. Weaker engineering construction is a somewhat concerning sign for business investment. The AiG reported slow activity on construction sites, lower investment spending and insufficient progress on planned developments.

China: The latest trade data highlight the impact of the US-China trade war. Exports fell 1.1% in the year to November, led by a 23% drop in exports to the US. Exports have now fallen for 12 consecutive months, with an increase in exports to ASEAN countries (18%), not enough to account for the fall in shipments to the US.

Imports edged up 0.3% over the year in November. Domestic demand has shown signs of stabilising in recent months, according to PMI surveys. However the latest increase in exports was mostly driven by a 41% surge in soybean imports.

United States: Employment growth notched a 10-month high in November, led by the healthcare industry and a return to work for workers on strike at GM. Non-farm payrolls increased by 266,000 in November, up from 156,000 in October. The increase included roughly 46,000 employees who returned to work at GM after a strike, and a gain of 60,200 healthcare workers. Construction-site jobs fell over the month amid cooler-than-normal temperatures. The solid gain in improvement pushed the unemployment rate down to 3.5%, back to its September reading.

Average hourly earnings rose 0.2% over the month in November, resulting in a 3.1% increase over the year. Increased hiring and steady wage growth is a positive for consumer spending, which has been the main driver of US growth recently.

 

Today's key data and events:

JN GDP Q3 final prev 0.1% (10.50am)

JN Current Account Oct prev 1612.9 (10.50am)

 

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