Wall Street plummets, Australian GDP disappoints

2018年12月5日

Summary:

  • US indices shed more than 3% on Tuesday

  • Australian economy expands at a pace below expectations

  • Chinese services PMI shoots up, US dollar marches higher

Stocks fall

The US stock market saw widespread and deep falls on Tuesday as no further details on the US-China temporary trade deal cast a shadow on its significance. Let us recall that after the two sides agreed to postpone imposing higher duties over the period of 90 days, no one offered us with greater details. Moreover, China seems to behave as if it would only consider scrapping its levies on US cars (the US said immediately after the G20 summit that China “will do so”) underlining some differences in understanding of the accord. On top of that, investors might be afraid of the flattening yield curve which was the bellwether of the incoming recession in the past, but the curve inversion does mean nothing and it is only a symbolic move after we could expected the recession to come over the next couple of quarters. Gloomy moods yesterday pushed the 2Y/10Y curve below 10 basis points as the demand longer-end bonds prevailed. The spread closed the day a touch above 10bps, however, if the pace of this move is retained, it could only a matter of time when the most eagerly watched segment of the curve ultimately inverts. All of that pushed the US indices down - the NASDAQ (US100) lost 3.8%, the SP500 (US500) sank 3.25% and the Dow Jones (US30) declined 3.1%. Among the biggest losers we may find companies such as JP Morgan Chase, Goldman Sachs or American Express - all crashed over 3%. Stocks in Asian have largely followed the moves on Wall Street with the Hang Seng (CHNComp) dropping almost 1.5% this morning. The NIKKEI (JAP225) closed 0.5% lower while the Australian benchmark (AUS200) fell 0.8%.

From a technical viewpoint thee US500 looks to be poised to continue falling in the medium to longer-term. First of all, the 50 and 200 daily MAs drew a death cross this week, the last time they intersected was April 2016, after it happened then the US500 began its wild rally from the levels below 2100 points. Secondly, the price attempted to break above 2815 points three times and it ultimately failed to do so. It is another sign of bulls’ fatigue suggesting that bears could take control for longer. Source: xStation5

Australian GDP misses forecasts

The Australian economy expanded at a disappointing pace during the three months through September. Source: Macrobond, XTB Research

Looking at the macroeconomic calendar over the Asian session we might focus on Australian GDP for the September quarter producing disappointing results. The economy expanded 0.3% QoQ or 2.8% YoY which was the pace well below expectations pointing to the values of 0.6% and 3.3% respectively. What’s more, the second quarter annual rate of growth was revised meaningfully down to 3.1% from 3.4%. While market participants’ suggests a big disappointment we are not so surprised given the data we were offered in the past several days (almost all of them surprised to the downside) - we mentioned downside risks to the GDP print on Tuesday. However, the details are more optimistic as all categories added to growth. Consumer spending added 1.4%, public spending 0.9%, net exports 0.6%, investment 0.3% and inventories 0.1%. What could a worrisome signal is the weak result of GFCF as well as another decline in the savings rate. The ratio decreased to 2.4%, the lowest since the GFC, as household consumption continued to outpace growth in household gross disposable income. Therefore, the’ ability of consumers to increase spending in the coming quarters was undercut again. It could change if wage growth accelerates at a healthier pace but it is unlikely to happen in the nearest future and the Reserve Bank of Australia also expects only gradual increases. As a consequence of today’s release the Australian dollar is falling nearly 0.6% being the weakest major currency. The US dollar is gaining against its all G10 peers fulled by risk aversion. The Australian dollar did not benefit from the much better China’s services PMI which increased to 53.8 in November from 50.8 while the consensus had pointed to a tiny decrease to 50.7. As a result the composite PMI jumped to 51.9 from 50.5. On top of that, we also got upbeat Australian services PMI which rose to 53.7 from 52.6.

Technically AUD bulls could try to buy the Aussie back around the lower limit of the bullish channel. If this level is broken, the decrease could be extended toward 0.7040. However, in the medium-term the Aussie seems to have room to increase but it needs the termination of the US-China trade battle. Source: xStation5

In the other news:

  • Japanese services PMI fell to 52.3 in November from 52.4, the composite gauge fell to 52.4 from 52.5

  • New Zealand construction work done in Q3 increased 0.7% QoQ falling short of the consensus of 2.3% QoQ

  • Oil prices fall 1.5% in anticipation of the OPEC meeting

  • The US 10Y yield closed Tuesday’s trading at 2.914%

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