RBA forecasts a slow but positive shift in the economy
RBA Deputy Governor Lowe took to the podium yesterday afternoon.
In his speech, Lowe said that together, a lower value of the Australian dollar, an improvement in business confidence and low interest rates provide the basis for the RBA's outlook of a gradual lift in the non-mining economy over the next couple of years.
On China, Lowe said that recent economic data was encouraging.
"The pessimists about China are being proved wrong again.
The recent growth numbers were encouraging and I don't see any reason to fear that growth will be substantially weaker in the period immediately ahead".
Equity markets edged higher overnight.
The main boost to sentiment came from a stronger-than-expected pick up in the Chinese manufacturing PMI, although some mixed data from Europe and the US overnight may have slightly worried investors.
The Dow rose 0.6% and the S&P500 lifted 0.3% to just below the record high set earlier this week.
US treasuries were mixed, but continued to be well-supported by expectations that the Federal Reserve will continue its asset purchasing program (QE).
The range of economic data last night further suggested that the first move for tapering would be sooner rather than later.
The yield on 10-year notes lifted 2 basis points to 2.52, but remains near its lowest in three months.
The renewed expectations that the Federal Reserve would delay tapering continued to drive currency markets.
The US dollar against a basket of currencies, hit a near nine month low. Meanwhile the euro rose to its highest in two years against the US dollar, despite underwhelming economic data from Europe.
The Chinese yuan also gained against the greenback and hit a record high, following the relatively strong manufacturing data in China.
The Australian dollar rose on the Chinese data, but pared those gains overnight, heading back, to around 96.2 US cents.
Gold and oil prices rose, despite the broad CRB commodity price index largely flat overnight.
Gold prices were supported expectations that the Fed would keep monetary stimulus for longer, and rose to a one-month high.
The flash estimate of the Markit-HSBC PMI improved again in the month of October, continuing the trend dating back to August.
The headline PMI rose to 50.9 in October from 50.2 in September. It was also above consensus.
It indicates that manufacturing activity is strengthening in China, helping the broader economic recovery.
Encouragingly, the majority of the sub-indices moved favourably, including new orders, employment, production, the order backlog and purchases quantity. There were, however, material declines in both input and output prices.
The Composite PMI slipped from 52.2 to 51.5 in October, which largely reflected a fall in the services PMI from 52.2 to 50.9.
The manufacturing PMI rose from 51.1 to 51.3, a touch below expectations of 51.4.
The composite and services PMI were also both below expectations, however, all indices remain above 50, and continue to signal expansion.
The goods trade deficit narrowed from NZ$1.2bn to NZ$0.2bn in September on the back of a strong lift in exports.
We expect to see export volumes continue to rebound strongly in coming months, as New Zealand's agricultural sector bounces back from the effects of last summer's drought.
Combined with high international prices on offer for key exports, such as dairy, this should see export revenues also improve further.
Imports were weaker than forecast this month.
However, over a longer horizon, a notable trend has been the pick-up in the growth of imports of capital equipment.
It reflects the improvement in business confidence and investment intentions observed this year.
Jobless claims fell from a revised 362k to 350k for the week ending 19 October, below consensus expectations to fall to 340k.
However, a backlog of applications in California is continuing to distort the data. It remains too early to tell what impact the government shutdown could have jobless claims and the state of the labour market.
The trade deficit was little changed from US$38.6bn in July to US$38.8bn in August.
The Kansas City Fed manufacturing activity index rose from 2 to 6 in October, providing an early positive sign for manufacturing, despite the political drama in the month.
In contrast, the preliminary PMI from Markit edged down from 52.8 to 51.1 in October, the weakest in a year. The output index fell to 49.5 in October suggesting contraction.
Overall, the picture for manufacturing remains mixed heading into Q4.