Morning Report
Today's economic developments and market movements.
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Key themes: Markets had a relatively quiet finish to the week with little significant market moving data.
US equities finished the week in the green with the S&P 500 posting its sixth consecutive weekly gain.
Rates were slightly lower across the curve in the US and Europe.
The US dollar took a breather from its recent strengthening, giving back a little ground against most of its G-10 counterparts.
Share markets: US equities ended the week in the green, with the S&P 500 posting its sixth consecutive weekly gain. The S&P 500 rose 0.4% on Friday, while the NASDAQ and the Dow Jones were up 0.6% and 0.1%, respectively.
The Eurostoxx 50 and the German Dax were up 0.8% and 0.4%, respectively. While the FTSE 100 slipped 0.3% in London.
The ASX 200 shed 0.9% on Friday but remained 0.8% higher over the week.
Interest rates: US treasury yields were slightly lower across the curve on Friday. The 2-year yield edged 2 basis points lower to 3.95%, while the 10-year yield was down 1 basis point to 4.08%. A November Fed rate cut remains around 90% priced in with around 40 basis points to cuts priced by the end of the year.
Aussie bond futures mimicked the moves offshore. The 3-and-10-year futures yields were both down 2 basis points to 3.80% and 4.30%, respectively. The odds of an RBA rate cut this year have been trimmed to around 25%, the first rate cut is not fully priced until May 2025.
Foreign exchange: The US dollar pulled back against most of its G-10 counterparts. The DXY slipped from a high of 103.80 to a low of 103.46 and finished only slighty above the days low at 103.49.
The Aussie dollar was a touch firmer and held on above 67 cents despite what was an underwhelming set of announcement from Chinese policymakers last week.
The sell-off in the euro hit a roadblock on Friday with the EUR/USD lifting off a low of 1.0825 to a high of 1.0870, near where it was trading early this morning. However, reassuring inflation data leaves the direction of travel for rates abundantly clear, and the euro on a less supportive yield foundation. After opening above 150 on Friday, the Japanese Yen found some buyers willing to push the USD/JPY back below 150 to around 149.56.
Commodities: Crude markets closed on their lows for the week as Western Leaders called for a ceasefire after the Israeli Defence Force confirmed the killing of Hamas Leader Sinwar. China’s apparent oil demand also fell 7% over the year to September. West Texas Intermediate futures closed down 2.1% at US$69.22.
Metals bounced into the end of the week as slightly better than expected Chinese activity data and the prospect of more stimulus helped stabilise sentiment. Copper was up 1.2% at US$9,553 while aluminium jumped 2.4% at $2,613.
Iron ore markets rebounded Friday despite Chinese steel production seeing the weakest back-to-back output in August and September since November 2021 bar December last year. Futures are up 1.2% at US$101.25. Chinese steel production so far this year is around 3% lower than last year and the lowest year to date total since 2019. At the same time, China has imported 8.5% more iron ore than it has on average over the last 3 years meaning that port inventory levels are close to record highs.
Australia: There were no major economic data releases on Friday.
China: Key economic data reinforced the message that the Chinese government needs to successfully implement stimulus measures if it wants to lift the economic momentum and achieve its growth objective.
GDP increased by 0.9% in the September quarter, up from downwardly revised 0.5% growth in the June quarter, but still below consensus expectations of a 1.1% rise. Compared to a year ago, output was 4.6% higher, which was the slowest annual pace of growth since the start of 2023.
Monthly indicators suggested that after weakening in August, China’s growth was stronger in September. Industrial production rose 0.6% in the month, the firmest in five months, to leave growth annual pace at 5.4%, close to the average over the last twelve months. News on consumer spending was also more positive, as retail sales increased by 0.4% in September and 3.2% over the year, both were the highest in four months.
Investment in fixed assets rose 0.7% in September. While it was the steepest increase in seven months, it was not sufficient to lift the annual growth on a YTD basis from 3.4% seen in August. The breakdown continued to show that state-owned companies fully accounted for the increase this year, while the private sector investment continued to stagnate.
Data on China’s real estate sector remained weak, with residential property sales still down by about 25% so far this year, and house prices maintaining their downward trend.
United Kingdom: Retail sales figures suggested that household consumption gained momentum in recent months. Headline retail sales volumes rose 0.3% in September, significantly higher than consensus forecasts of a 0.4% drop. And given that it followed strong gains July and August, the three-month growth accelerated to 1.8%, which matched the reading in Q1, when household consumption in the national accounts rose a solid 0.6% and was the biggest contributor to GDP growth that quarter. The annual growth in retail sales of 3.9% was the highest since early 2022.
United States: Housing starts declined by 0.5% in September following a sharp 7.8% gain in August. Weakness in the multifamily category accounted for the drop, while single family starts rose to a five-month high. In terms of levels, housing starts remained above the six-month average.
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