Daily Commentary BY THE CURVE TEAM –

US Market Leap Higher on Positive Trade News

8th of November, 2019

Positive news both domestically and offshore has lifted markets and sent yields higher.

With expectations that Septembers Trade Balance numbers would retreat from recent highs, yesterdays near record surplus was a positive surprise to the markets. Expectations were for near $1bn decline, but a 3.5% m/m growth in exports and 2.5% m/m growth in imports saw a $500m increase to the trade balance after a $700m positive revision to August. The end result $7.2bn surplus, the third largest surplus in history.

The key positive takeaway from the result is not the necessary the surplus itself but the fact that both imports and exports grew. Once again a key factor in export growth was a continuation of growth in LNG now up 7% y/y.

In news with large ramifications for the medium term global outlook, overnight the Chinese Commerce Ministry came out with a statement that talks had been progressing well and if a phase 1 deal was reached;

both sides should roll back existing additional tariffs in the same proportion simultaneously based on the content of the agreement…This is what agreed on following careful and constructive negotiations over the past two weeks”

The big caveat to that is there is yet to be offical agreement on a phase 1 deal but the upside for the outlook should that eventuate is significant. US markets responded almost instantly. The S&P500 hit an all time high at 3087 and bond yields leapt higher with UST2yr up 7bps and US 10yr up 10bps. The risk here is that despite positive news from China we are yet to receive offical comment from the US administration and some market participants are notoriously skeptical of trade negotiation headlines so we would suggest waiting so substantiation to the claims over the next few days.

Locally, focus today will be on the RBA’s Quarterly Statement on Monetary Policy due at 11:30. Whilst no major changes to the forecasts are expected after the insights given by Governor Lowe on Tuesday, with growth now expected by the bank to be 2.25% by the end of the year and 3.00% by 2021.

Matthew Dunshea

Client Relationship Manager