Main Themes: Attention remained on US-China trade talks ahead of the December 15 deadline for additional tariffs. Equities recorded little change on flat volumes while US treasury yields increased slightly.
Share Markets: Global equity markets moved in and out of negative territory overnight on relatively little major news flow. The Dow Jones and S&P500 were unchanged this morning. Volumes were below average as investors opted to stand pat amid mixed signals about the likelihood of fresh tariffs being imposed on Chinese goods this weekend.
Interest Rates: US treasuries inched higher in relatively directionless trade. Tariffs talks were the main driver. The 10-year bond yield rose 1 basis point to 1.84% and the 2-year saw a 2 basis point rise to 1.65%. The Federal Reserve began its two-day meeting overnight. Their interest rate decision will be announced on Thursday morning with no change in interest rates virtually certain, according to markets.
Australian bond yields edged lower. The 10-year bond yield fell 4 basis points to 1.11% and the 3-year fell 3 basis points to 0.68%. A string of weak economic data recently, including yesterday’s sluggish business confidence reading, has resulted in the markets pricing in a 64% chance of a rate cut in February next year.
Foreign Exchange: The US dollar index weakened, driven by gains in the euro following strong German confidence data and a gain in the pound ahead of the upcoming UK general election. The US dollar index fell 0.2% overnight. The pound rose 0.33% to US$1.3190 as more polls predicted a conservative majority following Thursday’s election. The Australian dollar was trading slightly weaker against the US dollar at 0.6814 this morning.
Commodities: Oil prices held onto their recent 3-month high, supported by signs of falling US crude inventories. Gold prices rose slightly to US$1464.4 per ounce while palladium surged to a record high after mines in South Africa were shut down due to power outages.
Australia: Business sentiment remained sluggish in November. The business confidence index fell to 0 in November, from 2 in October. The business conditions index was unchanged at 4. Both conditions and confidence remain below their 10-year averages of 6 and 5, respectively.
The sub-components of the conditions index were mixed over the month. A gain in profitability, to the highest since March, was offset by a modest decline in trading conditions. Employment was unchanged and is one of the few indicators in the survey that remains above its long-run average.
The ABS measure of dwelling prices showed a rise of 2.4% in the September quarter, which is consistent with a recovery underway.
China: Consumer prices rose by 4.5% in the year to November, up from annual growth if 3.8% in October. The lift in prices was mainly driven by a reversal in pork prices. We do not expect the central bank in China to move away from its easing stance.
Japan: Machine tool orders dropped 37.9% in the year to November, after an annual decline of 37.4% in the previous month.
Europe: The German ZEW survey of economic sentiment rose by more than expected in December. Investors were buoyed by an unexpected rise in exports during October, suggesting that the worst of the slump in the German economy could be over.
United States: Against the backdrop of stalling trade talks with China, a trade deal between the US, Mexico and Canada appears likely. Law-makers in all three countries appear poised to back the new trade deal with the US House set to vote on the deal next week.
Today's key data and events:
AU WBC-MI Consumer Confidence Dec prev 97.0 (10:30am)
JN BSI All Industry Q4 prev 1.1 (10:50am)
US CPI Nov exp 0.2% prev 0.4% (12:30am)
US FOMC Meeting exp 1.50%-1.75% prev 1.50-1.75% (6am)
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