Daily Commentary BY THE CURVE TEAM –

The Resumption of Data Flow Set to Shape the Near Term Outlook

8th of January, 2019

Markets have kicked off the week slowly walking back from the pessimistic crescendo that we saw during the holiday break. However the data flow is set to ramp up over the coming weeks which will largely shape the near term outlook.

The USD is on the back foot, equities are drifting higher and bond yields continue to rise after plunging into year end. The correlated moves which suggest an improvement in sentiment could be on reports of further progress on a China-US trade deal.

Or it could just be the lack any further negative headlines on the US government shutdown, the brexit mess or any major negative data reads over the past 24 hours.

The data to kick of the week has been somewhat mixed.

Locally, we saw the manufacturing PMI drop below 50 for the first time in more than two years. While not market moving, it is worthy of keeping an eye on. The last time it was below 50 the RBA was cutting interest rates.

We will get a clearer picture of the outlook for interest rates when the RBA meets early next month but market pricing has certainly turned around past month.

While European data was mixed, with factory orders down and retail sales up, it was the US data that was most interesting. After the unexpected fall in the ISM manufacturing index, the more important non-manufacturing index saw growth slow more than expected.

The index posted its third biggest drop since the GFC, falling from 60.7 in November to 57.6 in December. The positive is that it remains well above the key 50 level.

The data will continue to flow over the remainder of the week which will shape the near term outlook as we head into crucial central bank meetings kicking off at the end of the month.

David Flanagan

Director - Interest Rate Markets