Ian Bracegirdle

Good news keeps coming for residential sector

Australia:  

The AiG performance of manufacturing index lifted from 50.9 in October to 54.2 in November, the strongest in four months. 

New orders and production sub-indices were higher suggesting stronger activity in manufacturing towards the end of the year. 

Australia-wide capital city dwelling prices rose for the eleventh consecutive month, lifting 0.2% in November, according to CoreLogic. 

The last two months have seen much more modest gains in house prices, after average monthly gains of around 0.9% over January to September. 

Dwelling prices continue to lift, but growth is continuing to moderate. Low interest rates and ongoing population growth will continue to support housing demand. However, the strong increase in apartment building in capital cities will continue to weigh on unit prices.

Private capital expenditure fell 4.0% in the September quarter, the third consecutive quarter of decline. Annual growth has been in double-digit contraction for six consecutive quarters. Once again, mining investment drove the decline. 

However, the weakness in capex spending was broad based in the quarter with falls in manufacturing capex and other selected industries. 

Spending plans revealed a similar picture to the previous quarter, and suggest a sizeable decline in capex spending over 2016-17. 

We are yet to see the downturn in mining investment run its course, but the drag on the economy should ease over time. With regards to non-mining investment, we are yet to see much evidence of a sustained recovery in this survey.

Share Markets: 

US shares were dragged down by weaker technology stocks, although energy shares lifted on further gains in oil prices following the OPEC deal. The Dow gained 0.4% at the close, but the S&P500 was down 0.4% and the Nasdaq dropped 1.4%.

Interest Rates: 

US government bond yields extended their rise, further supported by positive US manufacturing data overnight.

US 10-year yields lifted 6 basis points to 2.44%, a new 1½-year high. Financial markets continue to price in a 100% chance of a rate hike by the Fed at its December meeting. 

There were big moves in Australian bond futures. Implied 3-year yields lifted 9 basis points to 2.0%, while 10-year bonds they rose 16 basis points. 

Foreign Exchange: 

The US dollar index weakened, but remains close to a 13-year high.

With a Fed rate hike fully priced in and uncertainty over Trump's stimulus policies, there wasn't a lot drive the rally further.

There will be some key event risk over the weekend with the US non-farm payrolls report and the Italian referendum.

Meanwhile, GBP rose to its highest in two months against the USD on comments by Brexit minister David Davis that the government would consider making a contribution to the EU for access to the single market. The weaker US dollar helped AUD edge a little higher, to a bit above 74 US cents.

Commodities:

Oil prices rose further, continuing to react to the OPEC deal to cut production. Iron ore prices remained volatile, surged after falling sharply in the previous session. Meanwhile, gold prices dropped sharply.

China: 

The manufacturing PMI edged up from 51.2 in October to 51.7 in November, the strongest in over two years.

It suggests that manufacturing activity continues to be supported by easy monetary conditions and fiscal expansion over the past year.

Meanwhile, the Caixin manufacturing PMI weakened from 51.2 in October to 50.9 in November, and suggest that the strength in manufacturing is skewed towards the larger state-owned firms.

The non-manufacturing PMI edged up from 54.0 in October to 54.7 in November, suggesting that the services sector continues to perform relatively well, and that the economy continues to rebalance towards growth driven by households. 

Europe:

The unemployment rate slipped from a revised 9.9% to 9.8% in October, the lowest in just over seven years, and signalling a slow recovery in the region.

The Markit manufacturing index was unrevised at 53.7 in the final estimate for November, slightly higher than the 53.5 reading for October.

Japan:

The Nikkei manufacturing index was revised upwards from 51.1 in the final estimate for November. 

New Zealand:

The terms of trade declined 1.8% in the September quarter. The terms of trade has declined in four out of the last five quarters reflecting a fall prices of diary, meat and forestry.

United Kingdom: 

The Markit PMI manufacturing index slipped from a revised 54.2 in October to 53.4 in November, below expectations for a reading of 54.4. While the weaker pound is boosting exports, firms reported rising input costs.

United States: 

The ISM manufacturing index rose from 51.9 in October to 53.2 in November, the highest in five months.

This suggests resilience in the manufacturing sector and stronger demand. In the lead up to the presidential election, Trump's policies were seen to be supportive of US manufacturing.

As yet, there appears to be little impact from the appreciating US dollar.

The markit manufacturing PMI told a similar story, also improving in November. The index was revised upwards from 53.9 to 54.1 in the final estimate.

Initial jobless claims rose from 251k to 268k for the week ending 26 November. However, the 4-week moving average remained very low at 251.5k. It continues to point to resilience in the labour market.



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