A further slowing in growth
It’s a slow start to the trading week.
The market closed the week with equities closing out a good week, bonds though also gaining. The AUD closed the week close to 0.71, having tested 0.70 earlier in the week, seemingly with a soft edge that was worked off in the second part of the week. It’s been trading close to that level in early trade this morning. The Dow, S&P 500, and the Nasdaq closing between 0.4-0.8% higher, all capping off a good week, the Nasdaq faring the best up just under 4% for the week. The US 10 year Treasury ended down 4.3bps to 2.5871%, the lowest since early year volatility.
Sterling made some gains at the end of the week as UK Chancellor Hammond and leaders of the DUP held talks, Sterling closing 0.45% higher at 1.3299.
A limited flow of data Friday was mostly US-centric on Friday and it was mixed report on the US economy. For those looking for trade impacts, Industrial production in February underwhelmed with barely visible growth of 0.1% growth after January’s 0.4% decline (revised up from -0.6%). The NY Fed’s Manufacturing report for March was softer than expected at 3.7, down from 8.8, a consensus forecast of 10.0 and back to levels again not seen since mid-2017.
On the other side of the ledger, the preliminary March UoM Consumer Sentiment index printed at 97.8, above last month’s 93.8 and an expected 95.3. The January JOLTS Job Openings labour turnover report (the underbelly of the labour market) showed a step up in new jobs to 7.581m from 7.335m and the near flat 7.31m expectation, a strong suggestion of no slowing in labour demand in the early part of the year. (It of course precedes the Feb near flat payrolls number.)
While not absolute top tier readings, it’s a mixed story, hints that trade war issues may be continuing to blow back against US trade-exposed sectors. The market is very alert to the expectation of a soft US GDP Q1, affected by the government shutdown, the Atlanta Fed’s GDPNow currently estimated at 0.4% and the NY Fed’s Nowcast estimate at 1.4%.
All eyes ahead now to the FOMC Thursday morning our time with only the NAHB Housing Index and the Feb Durable Goods Orders report between now and then.
As the clock ticks and as the Brexit train wreck continues to unfold, it seems that further talks between the Government and their Northern Ireland coalition members might have been getting closer to a “deal” over the weekend, but they are not there yet. Speaking on the BBC overnight, UK Chancellor Hammond has been saying that the Government won’t bring a third vote to the Commons unless they think they have sufficient votes, getting that support is still a “work in progress”, according to Hammond. He thinks they are close to resolving the challenging Brexit situation.
Even if they get such a third vote passed on a Withdrawal Agreement, PM May will the ask for the EU for a short extension to get everything in place. If it doesn’t pass, there is already talk of a fourth vote, but the PM will have to ask the EU for a longer extension. Just how long the extension would be will then be decided by an EU meeting on March 21.
The market waits and watches and continues to price against the prospect of a crash out Brexit deal, believing that Parliament will take control before that happens. Hopes, however forlorn, of a last minute deal, might be enough for May to convince her European negotiators to at least seek a short term extension. Frankly, how long will it be before Parliament takes control? Another referendum? An election?
On the US-China trade front, a press report out of China pointed to substantial progress as having been made, following news earlier in the week that the two Presidents now not meeting in late March that was earlier being touted as a big event “signing ceremony”. In addition, news from the main players among the US trade negotiators team suggested that much more work needs to be done.
While there is presumably a strong US political imperative to get a deal done ahead of next year’s elections, and presumably China is keen to bed down this issue, and while we expect a deal to be proclaimed, we can only believe it once it’s seen.
It’s also becoming clearer again that that North Korea’s de-nuclearisation seems way off and certainly not near the initial post-Trump/Kim meeting hopes.
Local Auction Clearance Rates for this weekend show the preliminary Sydney rate at 63.1% – likely mid-higher 50s by Thursday’s update – and Melbourne’s at 53.7%, likely around if not below 50% when the Thursday update is out.
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