Morning Report
Today's economic developments and market movements.
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Key themes: Equities were up across major markets overnight but gains were limited, particularly in the US.
Equity markets are awaiting results from Nvidia today, which could move markets significantly should earnings surprise.
US treasuries were mixed, driving a broad steepening in the US yield curve. There remains just shy of 100 basis points of Fed rate cuts priced in for 2024.
The US dollar was weaker against every G-10 peer with the DXY dropping to a fresh 13-month low.
Crude markets gave back much of the previous day’s gains, metals rallied despite warnings from BHP that copper remains in a near term surplus and iron ore markets continued the move higher similar warning in BHP’s earnings yesterday.
Share markets: Equities were up across major markets overnight but gains were limited, particularly in the US.
The S&P 500 closed 0.2% higher, led by IT and financial stocks. There was a similar gain in the NASDAQ. US equity markets are awaiting results from Nvidia today, which could move markets significantly should earnings surprise, given its role in 2024’s equity rally.
In contrast, the ASX 200 was down 0.2% yesterday with mixed performance across sectors. A 2.3% increase in the energy sector drove the gain, but this was partially offset by a 1.3% decline in IT stocks. Futures declined a further 0.4% overnight.
Interest rates: The US yield curve steepened with a 4 basis point fall in the 2-year bond yield and 1 basis point gain in the 10-year which ended at 3.90% and 3.82%, respectively. Just under four cuts are priced in for the Fed by the end of 2024 and seven by mid-2025.
The Australian yield curve shifted up yesterday with the 3-year and 10-year bond yields both up 6 basis points to finish at 3.51% and 3.91%, respectively. Futures were steady overnight. An RBA rate cut remains fully priced in for December.
Foreign exchange: The US dollar dropped to a fresh 13-month low overnight as economic data continues to underscore heightened risk of a labour market deterioration. The DXY index fell to 100.55 after trading between a high of 100.93 and a low of 100.51 – its lowest since July 2023.
The Aussie dollar unwound an initial fall to 0.6762 before peaking at a high of 0.6794 and finishing the day higher at 0.6793 . The AUD/USD has approached the 68 cent level on several occasions over recent sessions but has failed to make an impulsive move higher. Today’s monthly CPI indicator poses another hurdle for the Aussie given a benign result is expected. However, an upside surprise could provide the fuel for a leg higher.
The Japanese yen strengthened against the US dollar and was trading at 143.95 at the time of writing. Despite depreciating to a high of 145.18, the yen rallied during the US session ending near the day’s low. The euro and the British Pound also gained against the greenback.
Commodities: Crude markets gave back much of the previous day’s gains as traders focused on signs that Israel and Hezbollah were de-escalating. West Texas Intermediate futures dropped 2.4% US$75.53, while Brent futures are down 2.0% at US$79.80.
Metals rallied despite warnings from BHP that copper remains in a near term surplus. Copper jumped 1.7% to close at US$9,363 while aluminium closed above $2,500 at a fresh 6 week high.
Iron ore markets continued the move higher despite BHP issuing a “downgrade to our prior expectations, which reflects the ongoing shift in the Chinese real estate market”.
Futures in Singapore are up another 1.2% to US$102.00. The world’s largest steel producer, Baosteel, also warned that “in the second half of the year, the steel industry will maintain a situation of oversupply, and steel companies will continue to face pressure in their operations”.
China: Industrial profits rose at their fastest pace in five months in July, but weak domestic demand and no sign of rising output prices suggests the strength may not last. Industrial profits rose 4.1% over the year to July, up from a 3.6% annual increase in June.
Eurozone: German Q2 GDP growth was finalised unchanged at -0.1% in the quarter and 0.3% through the year.
United States: FHFA house prices met expectations in June, dipping 0.1% in the month compared to a flat result in May. In contrast, the S&P CoreLogic house prices measure beat expectations, gaining 0.4% in June which was unchanged on May’s monthly pace.
Conference Board consumer confidence ticked up to 103.3 in August following an upwardsly revised reading of 101.9 in July. Despite the monthly improvement, confidence remains materially below the average of the 5 years prior to the pandemic of 115.
The Richmond Fed manufacturing index slipped to a new short-term cycle low of -19 in August from -17 in July.
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