Main Themes:China has widened its travel ban to try and contain the coronavirus spreading. But news of spreading and increasing cases of the coronavirus overshadowed financial markets. Economic data releases were light and provided little distraction from news about the SARS-like virus.
Share Markets: US share markets posted a mixed performance overnight. The Dow Jones retreated 26 points (or -0.1% in percentage terms) and the S&P 500 index rose 4 points (or +0.1%).
Interest Rates: US bonds maintained a bid tone in overnight trade, leaving the US 2-year bond yield 2 basis points lower at the close and the US 10-year bond yield down 4 basis points. Australian 3-year and 10-year government bond futures followed the US move, but were less impacted.
Australian interest-rate markets have lengthened the odds of a near-term rate cut from the RBA. Ahead of the firmer-than-anticipated employment data yesterday, interest-rate markets were attaching a 56% chance of a rate cut next month. After the strong jobs data, markets reduced this probability to 27%.
Foreign Exchange: The AUD/USD exchange rate shot up yesterday after stronger-than-expected employment numbers were published in Australia. The AUD/USD moved from 0.6839 to a high of nearly 0.6880. The AUD/USD mostly held on to these gains for the remainder of the Asian trading session and into the European trading session. However, the AUD fully unwound these gains in the New York trading session, as the USD ground higher.
Commodities: Oil had been depressed by the ongoing coronavirus news. But a surprise draw in both US crude and distillate stocks led oil markets to claw back some of the losses.
Australia: Employment growth recorded another robust outturn in December. A surge in part-time jobs offset a minor fall in the number of full-time positions, resulting in a net 28.9k jobs added over the month.
The unemployment rate fell for the second consecutive month, edging down to 5.1%. The unemployment rate has ended 2019 at its lowest rate in nine months and just 0.1 percentage points higher than where it was at the end of 2018.
A total of 262.5k jobs were created over 2019, down from 269.6k in 2018 and 415.3k in 2017.
The participation rate held steady at 66.0%. Labour force participation has been increasing in recent years. This has blunted some of the impact of employment growth on the unemployment rate, as a greater share of people look for work.
Economic data released so far in 2020 has been upbeat. After drifting higher for most of 2019, today’s fall in the unemployment rate means that labour market outcomes appear to be heading in the right direction. Still, the unemployment rate remains above the RBA’s estimate of full employment.
Europe: The European Central Bank (ECB) met overnight. ECB officials left the key rate and the QE program unchanged. However, the ECB agreed to review its strategy for the first time since 2003. It may reset the inflation goal and study alternative measures of price growth. In her press conference, ECB President Christine Lagarde said there are signs of a moderate increase in underlying inflation in line with expectations.
United States: Initial jobless claims rose to 211,000 for the week ending January 18, after an outcome of 205,000 in the previous week. The 4-week moving average, which is a less volatile measure, dropped to 213,250, the lowest since the end of September 2019. The trend in jobless claims remains consistent with a tight jobs market. It also provides signs that companies may be reluctant to pare headcounts with an unemployment rate at a 50-year low.
The Kansas City Federal manufacturing activity survey improved to -1 in January, from -8 in December. The new orders sub component improved in the survey, which is also encouraging about the outlook.
Today's key data and events:
NZ CPI Q4 exp 0.4% prev 0.7% (8:45am)
AU CBA PMIs for Composite, Mfg & Services Jan (9am)
JN CPI Dec y/y exp 0.7% prev 0.5% (10:30am)
EZ Markit Mfg PMI Jan exp 46.8 prev 46.3 (8pm)
EZ Markit Services PMI Jan exp 52.8 prev 52.8 (8pm)
EZ Markit Composite PMI Jan exp 51.2 prev 50.9 (8pm)
UK Markit Mfg PMI Jan exp 48.8 prev 47.5 (8:30pm)
UK Markit Services PMI Jan exp 51.1 prev 50.0 (8:30pm)
UK Markit Composite PMI Jan exp 50.7 prev 49.3 (8:30pm)
US Markit Mfg PMI Jan exp 52.4 prev 52.4 (1:45am)
US Markit Services PMI Jan exp 53.0 prev 52.8 (1:45am)
US Markit Composite PMI Jan prev 52.7 (1:45am)
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