Main Themes: Markets were quiet due to a holiday in the US. Oil prices rose due to supply disruptions in Libya and Iraq while the US and France declared a truce in their digital tax dispute.
Share Markets: European equity markets were broadly weaker on low volume. Investors are awaiting fresh earnings results in the US as they weigh the impact of geopolitical conflict. The Euro Stoxx 50 fell 0.24%.
Australian shares continue to outperform most of their global peers in 2020. The ASX 200 rose 0.22% yesterday, leaving it up around 6% in January so far compared with a 3.2% rise in the S&P 500.
Interest Rates: Bond markets were muted ahead of key events later this week including several European central bank meetings and Davos.
US interest rate markets were closed. Australian yields were broadly steady. Futures markets are pricing in a 54.5% chance of an interest rate cut at the February meeting of the Reserve Bank board.
Foreign Exchange: The US dollar index was virtually unchanged after rising to its highest level of 2020 earlier in the evening. Both the US dollar and yuan have risen in the last week due to improving economic prospects. Volume has been light due to the Martin Luther King holiday in the US and ahead of the Lunar New Year holiday in China.
The Australian dollar continues to tread water ahead of the key release of labour market data on Thursday. It’s currently trading at US$0.6873.
Commodities: Oil prices surged as two large production bases in Libya shut down amid a military blockade. International powers continue to facilitate negotiations in a bid to end the country’s civil war. Meanwhile, anti-government protests in Iraq disrupted production there. Brent crude prices briefly surged above US$65 per barrel before falling back as markets assessed that tensions would abate. WTI futures closed at US$58.66 per barrel, paring intra-session gains.
Australia: There was no major data released Monday.
Japan: Industrial production contracted 1.0% in November as the economy continues to show signs that business conditions are softening following the October sales tax hike.
China: The People’s Bank of China (PBOC) left its benchmark 1 and 5 year prime rates unchanged at 4.15% and 4.8%, respectively. Beijing has been trying to balance credit market reform while still stimulating domestic demand as the trade dispute with the US has taken its toll.
Local media reported that a new respiratory illness has affected more than 200 people, just ahead of a massive week-long holiday. The illness has been likened to sars and is reported to have transmitted from human-to-humans, with multiple health workers affected.
Europe: US President Donald Trump and French President Emmanuel Macron agreed to not impose tariffs until at least the end of this year. The two countries have been in a dispute about a proposed French digital tax on large US tech companies like Google and Facebook.
United Kingdom: House prices rose 2.3% over the month in December, according to Rightmove. House price growth had been flat in the previous months as uncertainty around Brexit weighed on the sector. On an annual basis, prices were 2.7% higher.
United States: US markets were closed for Martin Luther King Jr. Day.
World: The IMF trimmed its growth forecasts for 2020, but still expects a bounce-back in the global economy. Growth is expected to accelerate to 3.3% this year compared with 2.9% in 2019. The report noted that risks are “less skewed” to the downside, however the latest downgrade in forecasts is the sixth in a row.
Today's key data and events:
NZ Performance of Services Index Dec prev 53.3 (8.30am)
UK Jobless Caims Change Dec prev 28.8k (8.30pm)
UK ILO Unemployment Rate Nov exp 3.8% prev 3.5% (8.30pm)
EZ Germany ZEW Current Situation Survey Jan prev -19.9 (9.00pm)
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