Bank of Melbourne

Morning Report

Main Themes: A December 15 deadline that will usher in US$156 billion in US tariffs on Chinese goods stirred caution in asset markets.
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Main Themes: A December 15 deadline that will usher in US$156 billion in US tariffs on Chinese goods stirred caution in asset markets.

Share Markets: Share markets ended weaker, reflecting nervousness among investors. This nervousness reflected the approaching deadline on US tariffs to take effect on Chinese goods this Sunday. The Dow Jones index closed down 70 points (or -0.3%) and the S&P 500 index fell 6 points (or -0.2%).

Interest Rates: With risk appetites waning overnight, US bond yields ended little changed at the close. The US 2-year bond yield was just 1 basis point higher while the US 2-year yield was 1 basis point softer. Interest-rate markets are pricing only a very tiny chance of an easing at this week’s Federal Reserve meeting.

Australian 3-year government bond yields were contained between 0.70% and 0.73%. Meanwhile, the Australian 10-year yield traded between 1.11% to 1.14%. Interest-rate markets are pricing a 65% chance of an easing at the Reserve Bank’s next meeting in February.

Foreign Exchange: The AUD/USD remained in an incredibly tight range overnight of 0.6821-0.6838 – just 17 pips. Indeed, the AUD/USD exchange rate has been stuck in a narrow 0.6810-0.6860 range for the past week, as it consolidates after bouncing 2 US cents from early October. Any moves to the 0.6950-0.7000 area should see sellers emerge.

Commodities: Gold held firm, as investors hedged against a possible escalation in the trade war. Crude oil prices fell.

Australia: There was no major economic data published yesterday in Australia.

Later today, the NAB business survey for November is published. Recent surveys have showed business confidence has remained fragile, reflected in caution around business investment.

Japan: There was a big upward revision for Q3 GDP growth, which sets the economy up for a deeper pullback in Q4 in response to the higher sales tax. The Japanese economy grew by 0.4% in the quarter, taking annualised growth to 1.8%. This annualised growth is a big step up, from a pace of just 0.2% in Q2. The inflation deflator remained soft, growing at a rate of 0.6% in Q3, the same rate as Q2.

New Zealand: Manufacturing activity rose by 0.9% in Q3, after falling by 0.5% in Q2. On a year ago, manufacturing volumes are 0.3% lower.

United States: Both the Mexican President and US Democratic House officials stated that the US-Mexico-Canada trade agreement (USMCA) is very close to being signed off.

 

Today's key data and events:

AU ABS House Price Index Q3 prev -0.7% (11:30am)

AU NAB Business Survey Nov (11:30am)

        Business Conditions prev 3

        Business Confidence prev 2

CH CPI Nov y/y ex 4.3% prev 3.8% (12:30pm)

CH PPI Nov y/y exp -1.5% prev -1.6% (12:30pm)

JN Machine Tool Orders Nov y/y prev -37.4% (5pm)

EZ ZEW Survey Expectations Dec prev -1.0 (9pm)

UK Industrial Production Oct exp 0.2% prev -0.3% (8:30pm)

UK Trade Oct exp -£2.7bn prev -£3.4bn (8:30m)

US NFIB Small Business Optimism Nov exp 103.0 prev 102.4 (10pm)

US Nonfarm Productivity Q3 Final exp -0.1% prev -0.3% (12:30am)

 

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