Markets Today: Breathe

Breathe was Prodigy’s bestselling album in the UK despite the fact that radio play was restricted to the evening shows and although it would be hard to make any link with the song lyrics and market events.

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Breathe was Prodigy’s bestselling album in the UK despite the fact that radio play was restricted to the evening shows and although it would be hard to make any link with the song lyrics and market events (or indeed any event!), the song title song does help describe market actions overnight.

While still under a positive tone, US and European equity markets took a breather overnight following the gains triggered by Friday’s better than expected non-farm payrolls report. Oil prices got a boost on the back of an OPEC announcement that it plans to hold informal talks in September with expectations of a potential oil production freeze helping other commodity prices and commodity linked currencies outperform. Core global yields ended the day little changed, but notably 10y Spanish Bonos traded sub 1% for the first time ever, boosted by the hunt for higher yield against an improved global growth outlook.

While European equity indices managed to end the day marginally in positive territory, US equity indices have closed with small loses with the rebound in energy and other commodity related sectors offset by declines in health-care shares.

The better tone in commodity prices has helped commodity linked currencies outperform with the AUD at the top of the G10 leader board. The AUDUSD has gained 0.45% over the past 24hrs and is currently trading at 0.7650 after reaching an overnight high of 0.7672. The market has clearly moved on from the RBA rate cut last week with the AUD now trading 1.3 cents above the lows reached last Tuesday. Meanwhile and ahead of the RBNZ on Thursday, the NZD is little changed (currently trading at 0.7137) and JPY is at the bottom of the leader board losing 0.61% against the USD with USD/JPY drifting to ¥102.46 from ¥102.

So although the USD was weaker against commodity linked currencies, the greenback still managed to outperform on a broad base. The DXY index climbed 0.17% overnight marking the fourth consecutive day of gains. So far higher rates and a stronger USD have not been an impediment for stronger equities and commodities with stronger data and prospect of further central bank easing outweighing any concerns of a stronger USD.

In other news, Donald Trump gave an economic-policy speech last night in an attempt to refocus his campaign on the economy. Trump called for called for aggressive sanctions against US trading partners, a reversal of environmental regulations and large tax cuts for individuals and businesses. Hillary Clinton will deliver her on economic speech on Thursday.

Coming Up

New Zealand’s electronic card transactions for July kick off a busy day of data releases and our BNZ colleagues have pencilled in a 0.3% gain for the month slightly higher than the consensus forecast of 0.1%. Then in Australia we get the weekly consumer confidence reading at 9:30 am followed by the July NAB survey at 11:30 (all AEST).

In June the NAB survey was carried out during the uncertainty around the Brexit referendum and ahead of the Australian federal election. Nevertheless, the survey showed improvements in both Business confidence (from +3 to +6) and conditions (from +10 to +12). Overall the results from the survey pointed to further improvements in the non-mining economy in Q2 with growth potentially becoming more broad-based – albeit with mixed evidence. As such it will be interesting to see to what extent, if any,  this narrative has changed at all in July.

Also at 11:30 this morning, China releases its CPI and PPI figures for July (yoy). The consensus forecast is for the CPI to slip down to 1.8% from 1.9% in June mainly driven by the ongoing easing in food prices since the beginning of the year. Meanwhile PPI for July is expected to print at -2% from -2.6% in the previous month.

Later this afternoon (16:00 AEST), Japan’s machine orders for June should be worth a look. The market is expecting a small rebound of 3.3%sa in June, following soft prints in the previous two months.

The UK industrial and manufacturing June productions figures are the highlights in Europe and both are expected to print close to flat. Meanwhile the US releases its NFIB survey (Jul), Productivity and Unit Labor Costs (Q2) and Wholesale Inventories (Jun). None of the US data releases are expected to be market moving, but for choice it would be interesting to see if the NFIB index continues to signal more weakness than the ISM data.

Overnight

On global stock markets, the S&P 500 was -0.09%. Bond markets saw US 10-years +0.35bp to 1.59%. In commodities, Brent crude oil +1.73% to $45.19, gold-0.1% to $1,334, iron ore +1.4% to $61.56. AUD is at 0.7656 and the range since yesterday 5pm Sydney time is 0.7612 to 0.767.

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