Bank of Melbourne

Morning Report

Main Themes: A surge in Covid-19 cases outside of mainland China spooked investors. US business surveys flashed a warning signal that growth may be slowing.


Main Themes: A surge in Covid-19 cases outside of mainland China spooked investors. US business surveys flashed a warning signal that growth may be slowing.

Share Markets: US share markets closed lower on Friday. Renewed concerns over the prospect of the coronavirus spreading rapidly outside of the disease epicentre in Hubei, China weighed on sentiment. A business survey showing that business activity shrank in February also dampened the mood.

Tech stocks were particularly impacted, with the NASDAQ down 1.8%. The S&P 500 closed down 1.1% and ended the week lower for the first time since January. The Dow Jones fell 0.8%.

The ASX 200 fell 0.30% on Friday and is poised to open lower this morning.

Interest Rates: Investors flocked to safe-haven assets amid concerns over the global spread of the coronavirus and that US business activity may be stalling. US treasury yields fell. The 10-year treasury yield fell 5 basis points to 1.47% and the 2-year bond yield fell 4 basis points to 1.35%.

German bond yields started the session weaker, but rebounded after a batch of business surveys pointed to better-than-expected growth in the Eurozone economy. The 10-year German bond yield ended up slightly by 1 basis point at -0.43%.

Australian bond yields were broadly flat on Friday. Markets are pricing just a 6.6% chance of a rut cut at the RBA’s next meeting in March, and are pricing in approximately 1.5 more cuts by the end of this year.

Foreign Exchange: The US dollar fell while the euro rose. The Japanese yen and Australian dollar bounced from their lows but ended the session lower.

The US dollar index fell 0.603 points to 99.262. Concerns over the coronavirus were supporting the dollar, however it fell following the release of the IHS Markit Purchasing Manager’s Index (PMI) showing weaker-than-expected activity in the manufacturing and services sectors.

The Australian dollar rebounded from a session low US$0.6583, but remains under pressure at US$0.6600 this morning.

Commodities: Oil declined on Friday on renewed concerns about crude demand in the wake of the inevitable economic impact from the coronavirus. WTI futures fell approximately 1% to US$53.4 per barrel. Gold prices rose as investors sought safe-haven assets.

Australia: There was no major data released on Friday.

China: Beijing once again pledged additional fiscal and monetary support measures. President Xi said that further policy adjustments will be made to ensure the nation’s economic and social goals are achieved. The IMF downgraded its baseline for economic growth in China to 5.6% in 2020. Millions of Chinese companies are reportedly facing collapse without state support due to the economically crippling effect of measures to contain the spread of Covid-19.

Europe: The IHS Markit PMI unexpectedly rose. The manufacturing index picked up to 49.1 in February from 47.9 in January. Despite the improvement, the index remains below the 50 breakeven level, signifying a contraction in activity.

United States: US manufacturing PMI declined by more than expected, possibly reflecting the negative impact of the coronavirus. The services index also fell, leaving the composite PMI at its lowest level since 2013.



Today's key data and events:

NZ Retail Sales Ex Inflation Q4 exp 0.8% prev 1.6% (8:45am)

NZ Credit Card Spending Jan prev 3.4% (1pm)

EZ German IFO Bus. Climate Feb exp 95.3 prev 95.9 (8pm)

EZ German IFO Expectations Feb exp 92.1 prev 92.9 (8pm)

US Chicago Fed Activity Feb exp -0.16 prev -0.35 (12:30am)

US Dallas Fed Mfg Activity Feb exp 0.0 prev -0.2 (2:30am)

UK BOE Chief Economist Haldane Speaks (5:30am)

US Fed’s Mester Speaks (7am)


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