Asian equity markets are mostly lower this morning. Yesterday’s stronger than expected US economic data and media reports that the US Federal Reserve may predict a higher peak for interest rates next week have dampened hopes of an early end to interest rate hikes. The Reserve Bank of Australia as expected raised interest rates by 25 basis points at its latest policy update. Its statement said that inflation remained too high but that medium-term expectations were well anchored. October German factory orders rose by a higher-than-expected 0.8% and September was revised up.
Today’s data calendar is very light. In the UK, the construction PMI report for November will provide a timely update on a very interest rate sensitive sector ahead of next week’s Bank of England monetary policy meeting. In October, the headline rose to its highest level for five months led by a surge in commercial building. Other parts of the sector were less strong as housing activity slowed and civil engineering output fell for the fourth month in a row. The consensus expectation is that activity rose again in November at a pace that was only slightly below the previous month. However, growth expectations for the year ahead were very subdued last time and seem likely to be so again in the latest report, which suggests that the current bounce in activity will not be sustained.
In the US, already released October data for international trade point to another substantial rise in the overall trade deficit. International trade made a positive contribution to Q3 GDP growth as US exports accelerated and import growth slowed. However, the deficit rose in September and seems to have risen even further early in Q4. That deterioration may reflect a loss of competitiveness due to the strong dollar but the negative impact on demand for US exports due to slowing growth around the world is also probably a factor.
November trade figures for China, due early Wednesday, will provide further information on international trade conditions. Both export and imports are expected to have slipped in part due to the impact of the latest Covid lockdowns. Those may have restricted the supply of products for export and demands for imports. Meanwhile, Australian Q3 GDP is forecast to show a slowdown in growth from Q2, which if confirmed would raise the odds that the Australian central bank may soon stop raising interest rates.
US Treasury yields rose yesterday after the stronger-than-expected US data but UK gilt yields were down on the day. In currency markets, the US dollar rebounded against both the euro and sterling as markets took onboard the possibility of a higher terminal rate for US interest rates.
