Main Themes: There was little data released overnight to guide markets. Investors digested the latest coronavirus developments with bated breath. Some factories in China reopened while there was news that the number of cases outside of China has increased. US equities edged higher while bond yields ended a mixed session lower.
Share Markets: US equities rose ahead of more company earnings data due to be released later this week, casting aside concerns about the spread of the coronavirus. The Dow Jones is currently up 0.4% while the S&P500 is 0.5% higher.
European bourses slipped amid political turmoil, driven by the collapse of German Chancellor Angela Merkel’s succession plan. The leader of the Merkel’s Christian Democratic Union said that she would step down and would not run as the party’s candidate for chancellor at the next election. The Euro Stoxx 50 fell 0.14%.
Interest Rates: The US yield curve ended a mixed session flatter, with yields generally trending lower overnight. The 10-year US treasury fell 3 basis points to 1.55% while the 3-month treasury bill edged up 1 basis point to 1.52%. Some investors are once again fretting about another broad inversion of the yield curve, which has historically been a reliable indicator of an impending US recession.
Australian bond yields fell across the board. The yield on the 10-year bond is 1.01%, down 3 basis points but managing to hold just above 1% for the fourth straight session. The 3-year yield fell 2 basis points to 0.70% while the 90-day bank bill swap yield was 1 basis point lower at 0.91%.
Foreign Exchange: Currencies were mixed, with the Australian dollar bouncing from its lows and the US dollar index edging higher.
The US dollar index rose for the fifth consecutive session as investors continued to worry about the coronavirus, increasing 0.2% overnight.
The Australian dollar fell to US$0.6660 overnight, its lowest since March 2009, but subsequently bounced to a high of US$0.6707 before completing the round trip back to near where it started the session, and is currently at US$0.6680. Coronavirus concerns have weighed on the Australian dollar over the last week, despite the less dovish tone from the RBA over that same period.
Commodities: Oil prices fell after OPEC+ decided not to hold a special meeting to cut output. WTI futures plunged 1.6% to US$49.54 per barrel. Gold prices edged higher.
Australia: There was no major data released yesterday.
Japan: Japan recorded a ¥1.71 trillion current account surplus in December (adjusted), down from ¥1.79 trillion in November. Japan’s exports have been relatively firm in 2019, although the outbreak of the coronavirus is expected to dampen activity early in 2020.
China: Consumer prices jumped 5.4% over the year in January, up from a 4.5% pace in December. Supply issues were the main drivers of the increase, including the coronavirus and swine flu. Food prices rose 20.6% over the year while non-food prices were 1.6% higher. The timing of the Spring Holiday Festival also had an impact.
Producer price growth remained subdued, with the producer price index up just 0.1% over the year in January.
World: The latest coronavirus statistics show a total of 40,655 confirmed worldwide cases, of which 910 have died and 3,669 have recovered. The vast majority of cases and causalities remain in China.
Today's key data and events:
AU Housing Finance Dec (11:30am)
-Value Home Loans exp 1.6% prev 1.8%
-Value Owner Occupiers exp 1.7% prev 1.6%
-Value Investors exp 1.5% prev 2.2%
AU NAB Business Survey Jan (11:30am)
-Business Conditions prev 3
-Business Confidence prev -2
UK GDP Q4 exp 0.0% prev 0.4% (8:30pm)
UK Industrial Production Dec exp 0.3% prev -1.2%
US NFIB Business Survey Jan exp 103.3 prev 102.7 (10pm)
US Feds speakers Daly (10pm), Quarles (4:15am), Bullard (5:30am), Kashkari (6:15am)
US Fed Chair Powell Speaks Before House (2am)
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