Markets Today: Spring time

One of the first things that I learned when I arrived in Australia a few years ago is that spring in southern hemisphere countries doesn’t start on the same day.

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One of the first things that I learned when I arrived in Australia a few years ago is that spring in southern hemisphere countries doesn’t start on the same day. In South America, where I am from, spring starts around the 21st or 23rd of September depending on when equinox (day and night are the same duration) occurs. Meanwhile in Australia the seasons are defined by calendar months, so springs starts today!

Well while tight ranges remains the theme ahead of payrolls on Friday equity markets have ended the last month of winter on a downbeat mood with US and European indices down between 0.15% and 0.6%. The sharp fall in oil prices appears to have been the trigger with Brent and WTI falling around 3% on the back of news that US crude oil stockpiles increased to another record high.

In currencies it was another mixed night for the USD, USD/JPY has made a decisive move above ¥103 and the dollar is also stronger against the CAD, dragged lower by the move in oil despite the fact that Canada’s Q2 GDP growth printed above expectations (0.6% vs 0.4%). Meanwhile NZD and GBP are the outperformers, both up 0.42%. The NZD’s outperformance is somewhat notable given the mild pull back in risk appetite (the VIX index climbed to 13.43 from 13.12). At the margin yesterday’s robust ANZ survey which showed a pickup in activity indicators could have been a supporting factor for the Kiwi, but the survey also showed a mild fall in inflation expectations, so that would have been a mitigating factor too. In contrast the AUD is practically unchanged at 0.7518 and although overnight it traded mostly sideways, it is interesting to note that it briefly dipped below the 75 cent mark for the first time since 2 August.

US Treasury traded in a narrow range with data releases seemingly having very little impact. ADP Augusr private payrolls rose 177k – close to the 175k consensus and it had little impact on the expected 180k print for payrolls on Friday.

We had a few Fed speakers overnight, but their comments had little to no impact on markets. Fed Evans (dove) said he sees a protracted period of low rates ahead, weak growth implying lower real rates over the long run. Fed Rosengren (who has been more hawkish) said Fed’s employment, inflation mandates likely to be achieved relatively soon. Rate hike timing depends partly on financial stability and somewhat faster hikes could reduce the severity of the next economic downturn.

On other news, Brazil’s senate has voted (61/20) to impeach president Rousseff, ending almost 14 years of ruling by the Workers party.

Coming Up

We have a busy day of data releases both domestically and abroad. In Australia, retail sales for July and the June quarter Capex Survey are the two highlights and both are out at 11:30 am (AEST). Half an hour earlier, China releases its official manufacturing and non-manufacturing PMIs for August and then at 11:45am we get the Caixin version of China’s PMIs, also for August.

So the main data releases during our day time are going to be clustered between 11:00 and 11:45am this morning. For AU retail sales our economists predict a flat outcome for July (vs 0.3% consensus) driven by mixed industry reports. As for the Capex survey, NAB is looking for a decline of 8% in the volume of aggregate capital spending for the quarter (market is at -4.1%) and we have pencilled in $97.6bn for the third estimate of expected spending in 2016-17, almost in line with the $97bn expected by the market.

Bloomberg surveys show that China’s official manufacturing PMI is expected to hold at 49.9 while the Caixin measure is seen falling to 50.2 from 50.6 in July. There are no surveys for the official non-manufacturing PMI and Caixin services PMI, but the market will be looking to see if the solid July prints (53.9 and 51.7 respectively) can be maintained in August.

The UK August manufacturing PMI is also due out today and the big question is whether the sharp contraction seen in the July print (down to 48.2 from 52.4) is to be followed by another in August. Europe also gets final PMI readings, but they are unlikely to trouble the scorers.

Finally the US data highlights are weekly jobless claims, auto sales, construction spending and the ISM manufacturing survey. The latter is the one to likely garner more attention and if regional surveys are any guide a small pull back from the 52.6 print in July should be expected.

Overnight

On global stock markets, the S&P 500 was -0.24%. Bond markets saw US 10-years +1.20bp to 1.58%. In commodities, Brent crude oil -3.43% to $47.01, gold-0.2% to $1,308, iron ore -0.6% to $58.97. AUD is at 0.752 and the range since yesterday 5pm Sydney time is 0.7491 to 0.7527.

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