Bank of Melbourne

Morning Report

Main Themes: Markets ended last week upbeat, buoyed by mostly positive US economic data and signs of stabilising growth in China.

Welcome back to our first morning report of 2020.

We hope you and your families had a very happy and safe festive season.

Main Themes: Markets ended last week upbeat, buoyed by mostly positive US economic data and signs of stabilising growth in China.

Share Markets: Equity markets in the US and Australia reached new highs on Friday. In the US, the Dow Jones closed 0.2% higher while the S&P 500 rose by 0.4%. Solid US economic data as well as optimism about corporate earnings supported stocks. The ASX 200 rose 0.3% to a new high of 7,064.1, closing above 7,000 for the second day in a row.

Interest Rates: The US yield curve was slightly steeper, although bonds were relatively range-bound, despite the broadly upbeat economic data. The 10 year treasury yield rose 3 basis points to 1.84% while the 2-year bond and 3-month bill were unchanged at 1.57% and 1.56%, respectively.

Australian yields were unchanged. The 10-year bond is currently yielding 1.18% while the 3-year bond is at 0.74%.

Foreign Exchange: The US dollar continued to edge higher. The US dollar index rose 0.3% amid positive US economic data and while data out of the UK and Europe missed expectations.

The Australian dollar lost ground against the US dollar on Friday and is currently around 68.73 US cents.

Commodities: Oil prices were virtually unchanged on Friday at US$58.54 per barrel for WTI futures. Oil has been supported recently by the “Phase One” US-China trade deal.

Australia: There was no major data released on Friday.

China: GDP recorded annual growth of 6.0% in the December quarter, in line with expectations. For 2019 as a whole, the economy grew by 6.1%, at the lower end of the authorities’ target range of 6.0%-6.5%. This was the slowest yearly expansion in 29 years.

The detail in the report show that the US-China trade war has had a material effect on exports. Net exports’ contribution remained weak, however this was offset by a pick-up in the contribution from investment as the authorities have moved to stoke domestic activity.

Other data released showed that fixed-asset investment rose 5.4% over 2019 while industrial production jumped 6.9%. Retail sales grew 8.0% over the year.

Europe: Higher energy costs boosted euro zone inflation in December. CPI grew 1.3% compared with a 1.0% increase in November. Despite the latest increase, inflation remains well below the European Central Bank’s (ECB) target of below, but close to 2.0%.

United Kingdom: Consumers cut back on spending in December, despite the convincing election outcome on December 12. Retail sales fell by 0.6% over the month, marking the fifth consecutive month of declines.

United States: There was a slew of mostly positive data released on Friday. December housing starts surged 16.9% over the month to a 13-year high, helped by milder weather across most of the country but still indicating very strong activity in the sector. Industrial production fell 0.3% over the month, dragged down by strikes in the auto sector. Excluding automobile production, industrial production was up 0.5%.

On the consumer side, the University of Michigan sentiment survey showed that consumer sentiment remains upbeat in January. The index remained at a solid level of 99.1 with the current conditions indicator at 153.8.

Tempering some of this positivity, job openings fell by 561,000 to 6.8 million in November.


Today's key data and events:

UK RIghtmove House Prices Jan prev -0.9% (11.01am)

CH 1-Year Loan Prime Rate exp 4.1% prev 4.15% (12.30pm)

CH 5-Year Loan Prime Rate exp 4.8% prev 4.8% (12.30pm)

JN Industrial Production Nov final prev -0.9% (3.30pm)

JN Capacity Utilisation Nov final prev -4.5% (3.30pm)

EZ ECB President Lagarde Speaks (5.30am)


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.


Nelson Aston, Economist Ph: 02-8254-1316