Bank of Melbourne

Morning Report

Main Themes: Concerns about COVID-19 mounted overnight. Goldman Sachs warned investors have been underestimating the impact from the virus and the airline industry expects the virus will cause the first annual decline in global passenger demand in 11 years.
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Main Themes:  Concerns about COVID-19 mounted overnight. Goldman Sachs warned investors have been underestimating the impact from the virus and the airline industry expects the virus will cause the first annual decline in global passenger demand in 11 years.

Share Markets: US share markets fell on concerns the coronavirus will take a heavy toll on earnings, with tech leading declines. Goldman Sachs warned of a likely sell-off, given that investors have been underestimating the epidemic's impact. The Dow Jones closed down 128 points (or -0.4%) and the S&P 500 index ended 13 points weaker (or -0.4%).

Interest Rates: Concerns around COVID-19 underpinned demand for global bonds. US bond yields fell by 3-5 basis points across the yield curve.

Foreign Exchange: The Australian dollar lost more ground over the past 24 hours. Selling of the AUD/USD exchange rate accelerated after the publication of domestic jobs data. The unemployment rate rose by more than consensus expected. The AUD/USD fell from a high of 0.6695 to a low of 0.6610 overnight.

Commodities: Oil jumped to the highest in almost 4 weeks after US crude exports surged and the expansion of domestic inventories slowed dramatically.

Australia: Signs of increasing spare capacity in the labour market flared up again in January. The unemployment rate rose 0.2 percentage points to 5.3%, reversing two consecutive improvements at the end of last year.

The increase in the unemployment rate was due to a rising participation rate. The participation rate rose to 66.1% in January, from 66.0% in December.

Employment growth registered 13.5k jobs, the third straight monthly increase. A 47.5k surge in full-time jobs offset a 33.7k fall in part-time jobs.

January’s gain in employment was driven by a rebound in jobs creation in Western Australia (6.7k), Queensland (2.8k) and Victoria (2.9k).

China: China'sHubei province, the industrial powerhouse at the centre of the outbreak, asked firms not to resume work before March 11. The airline industry expects that the virus will cause the first annual decline in global passenger demand in 11 years.

New Zealand: Producer price growth remained modest in the December quarter. Output prices rose by 0.4%, led by a strong 2.8% increase in diary prices. A 3.4% fall in electricity, gas & waste services held back the increase. Input prices edged higher by 0.1%.

United Kingdom: Core retail sales rebounded in January by 1.6%, but were still softer in the three months to January.

United States: There was a near record jump in the Philadelphia Federal Reserve Bank’s business outlook index. The index spiked to 36.7 in February, from 17.0 in January. The outcome suggests a pick up in US manufacturing activity in the months ahead. Of the five diffusion indices compiled by regional Federal Reserve banks, the Philadelphia index had the strongest predictive value. All the major components of the Philadelphia index surged with the exception of planned capital expenditures.

 

Today's key data and events:

JN Consumer Prices Jan y/y exp 0.7% prev 0.8% (10:30am)

EZ Markit PMI for Mfg, Services & Composite Feb (8pm)

UK Markit PMI for Mfg, Services & Composite Feb (8:30pm)

US Markit PMI Mfg Feb exp 51.5 prev 51.9 (1:45am)

US Markit PMI Services Feb exp 53.4 prev 53.4 (1:45am)

US Markit PMI Composite Feb prev 53.3 (1:45am)

US Existing Home Sales Feb exp -1.8% prev 3.6% (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.

  

Besa Deda, Chief Economist Ph: 02-8254-3251