It has not been a big night as far as price action was concerned, the Eurostoxx 600 index off 0.29%, European bond markets with a modest bid tone, yields off fractionally.  The German 10 year bond was almost unchanged lower on net by less than one basis point.  Gold was little changed, up $3.80/oz.

The largest currency move has been the Aussie over the past 24 hours, the yen and KRW little changed after the Korean missile test.  It was the AUD’s swift reaction to yesterday’s only-incremental change in the RBA’s post-Board statement, a materially larger reaction than for the Won after the launch of an Intercontinental Ballistic Missile from North Korea, a launch that’s also drawn the ire of a statement from the Chinese and the Russians.

While no one expected a change in the cash rate, the market was clearly priming itself for more, something that could be inferred as at least having a partly hawkish tilt.  An expectation of a half move away from the RBA’s neutral monetary policy bias and/or a more upbeat statement on the economy’s progress and outlook was sought after recent comments from the Bank of Canada and others over the past fortnight (and the BoC again overnight – see below).  Instead, the RBA was not drawn in to the prospect of even half hinting removing some monetary accommodation and adding fuel to local and global yields and the AUD.  The Bank played a very straight blocking bat indeed.

The AUD was sold quickly after 2.30, down from 0.7680, dropping the best part of three quarters of a cent.  It subsequently tested 0.76 later in the APAC session and again overnight, currently trading at just over the figure. The Won, by contrast, was little moved after news on the missile test filtered through, USD/KRW trading at 1152, actually strengthening marginally to 1150/51 and also a little against the Japanese yen.  The KOSPI was down by 0.58% in otherwise also soft Asia markets.  It’ll be interesting to see whether the broader market in the US reacts at all to this latest North Korean episode to deflect any of its attention at all from Friday’s payrolls. Unlikely if post-missile launch market price action is any guide.

In Europe, the Swedish Riksbank met and only partly joined the central bank party hinting at policy removal, staying on the periphery with the RBA.  They left their repo rate unchanged at -0.5%.  They did point to less chance of further easing being required, noting that the risk of setbacks were thought to have decreased.  But they also cited the importance that the SEK not appreciate too rapidly and did not rule out the possibility that the repo rate could still be cut, if unlikely now.

Elsewhere in Europe, ECB Chief Economist Peter Praet and Governing Council member Nowotny (Austria) were both speaking.  There were no great surprises from either, Praet saying that their inflation forecast scenarios are “crucially contingent” on very easy financing conditions.  Nowotny referred to the long lags of monetary policy and that policy should be normalised as soon as the economy allows, more hawkish but not overly so.

NZ’s overnight dairy auction saw only marginally lower dairy prices, off 0.4%; iron ore, by contrast, was also lower, down $1.06/t after last week’s big gains.

While the AUD was punished, USD/CAD has risen by 0.4%, aided by more positive commentary from BoC Governor Poloz, hinting further in the rate hike direction.  Canadian rate markets are now pricing in a 87% chance of a hike next week, up from 84%.  Poloz said in a German newspaper interview that inflation should be well into an uptrend in 1H 2018 as the output gap closes.

Coming up

Looking ahead for the rest of this week, the next really big data event is Friday’s payrolls. Ahead of that release is tomorrow night’s ADP Employment report but more importantly the ISM Non-manufacturing index for June out tomorrow night.  Locally the data run is now more scant, with Thursday’s trade report for May the main interest; there’ll be more about that tomorrow.

Today and tonight, it’s all pretty much second tier releases.  It kicks off with NZ’s ANZ Job Ads this morning, and for Australia is the AiG Services PSI Index (L: 51.5), another piece of evidence on the so-far upbeat state of business activity, continued on Monday with the solid 55.0 reading from the AiG PMI Manufacturing index.  NZ also has its ANZ Commodity price Index for June too.

There will be some Aussie dollar interest in the Caixin Services and Composite Index for June after the official readings and the Caixin indicators printed on the strong side.

In the European session tonight there is the second estimates of June’s Euro Services and Composite Indexes, EC Retail Sales for May, and US Factory Orders.  There’s always the possibility that the Fed Minutes might throw something new out, but having had the Fed’s new forecasts, Yellen presser and a full exposition of the proposed QE wind-down process, can there be too much more that would really surprise the market?

Overnight

US markets were closed. In commodities, Brent crude oil -0.14% to $49.61, gold+0.3% to $1,223, iron ore -1.6% to $63.23, steam coal +2.1% to $81.15, met. coal +0.0% to $155.00. AUD is at 0.7604 and the range since yesterday 5pm Sydney time is 0.7591 to 0.7683.

Good luck.

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• Markets Today: 5 July 2107 (PDF, 114kb)

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