Below trend growth to continue
On Friday the US dollar failed to sustain the gains seen in the immediate aftermath of a US employment report best described as solid but not spectacular. This meant that the AUD finished the week up at 0.7420 having been as low as 0.7260 earlier in the week.
On Friday the US dollar failed to sustain the gains seen in the immediate aftermath of a US employment report best described as solid but not spectacular. This meant that the AUD finished the week up at 0.7420 having been as low as 0.7260 earlier in the week. US interest rate markets also failed to sustain their post-data sell-off (with the exception of the very front end of the curve). The latest slide in oil prices was seen partly to blame. US equities recouped a good chunk of their early US day losses.
Saturday’s China trade data, showing unexpectedly weak export numbers and a slightly deeper than expected contraction in imports, has put the AUD back on the defensive Monday morning, though AUD/USD still sits comfortably back on a 0.74 handle as we write.
DXY ended the NY session -0.28%, the broader BBDXY -0.27% and ADXY -0.05% (so no love for Asia EM currencies despite the generally weaker USD). EUR/USD finished +0.38% at 1.0967, USD/JPY -0.4% at 124.24 and GBP/USD -0.14% at 1.5491. NZD resumed the uptrend in place ahead of payrolls, after a two hour post-payrolls interlude, ending up the best performing major on the night, +1.05% at 0.6622. . CAD still lost ground, -0.16% to 1.3131, oil again unhelpful to its cause. Canada’s own employment report on Friday was much of a muchness, headline employment +6.6k and the unemployment rate steady at 6.8%.
In rates, US 2s ended the NY session +1.6bps at 0.7169% (having traded as high as 0.7409% from a pre-payrolls low of 0.6929%). 10s ended -5.9bps to 2.1623%.
In stocks, the S&P500 finished -0.29%, the Dow -0.27% and NASDAQ -0.26%. Indices all rallied in afternoon NY trade having been lower post-payrolls. Earlier Friday the Shanghai Composite added 2.26% to be 2.2% up on the week.
In commodities, with the exception of gold (+$4.60 to $1,094) it was another sea of red. The LMEX index finished -0.23% and iron ore lost $0.38 to $56.40 (but $3 up on the week and now +$5 in the last fortnight). WTI crude lost another $0.79 to $43.87 (-$3.25 on the week) and Brent -$0.91 to $48.61 (-$3.50) on the week).
As for the details of the US and China data, Saturday’s China July trade figures disappointed mostly on weaker than expected export numbers, annual growth (in USD terms) contracting by 8.3% after being +2.8% in June and expected to drop to just -1.5%. Imports were slightly weaker than expected at -8.1% y/y from -8.0% and the -6.1% expected. This put the overall trade surplus at $43.0bn down from $54.7bn and $46.5bn expected.
Sunday saw China July CPI lifting to 1.6% from 1.4% (1.5% expected) but PPI deflation deepening, -5.4% from -4.8% (-5.0% E). No inflation constraints here to further PBoC policy easing – and potentially a somewhat weaker currency.
US July non-farm payrolls at 215k were 10k under consensus but June was revised up by 8k to 231k and May by 4k, so net of revisions, bang on expectations. The unemployment rate held steady at 5.3% as expected, through the broader U-6 unemployment measure that includes part-timers seeking longer hours, dropped to 10.4% from 10.5%. The labour participation rate was unchanged at 62.6% as expected.
Average Hourly Earnings rose 0.2% on the month as expected and after flat-lining in June, to push year-on-year growth up to 2.1% from 2.0% (though this was depressed vs. the 2.3% consensus by other back revisions). Encouragingly, the average weekly work week increased to 34.6 hours from 34.5 (34.5 E).
CoreLogic RP Data’s weekend auction clearance report shows the preliminary 7-capital city average clearance rate at 77.0% up from a final 74.6% last weekend, the rise led by Adelaide, Canberra and Tasmania.
Sydney’s clearance rate slipped to 77.8% from 78.8% and Melbourne’s was little changed, 78.5% vs. 78.6%.
In what is not a massive week ahead data and events wise (as is usually the case in the week following the US payrolls report) there will be keen interest in the Fed speaker calendar for judgements on the latest data as we head towards the Sep 16/17 FOMC meeting. Today, this includes a Bloomberg TV interview with Fed Vice-chairman Stanley Fischer (21:15 AEST tonight) and a bit later in the evening/overnight, two appearances from Atlanta Fed president Lockhart (who last week, recall, shifted the debate from ‘why?’ to ‘why not?’ (move rates in September). US data wise, retail sales on Thursday should be the highlight.
The usual slug of China activity data (covering retail sales, industrial production and fixed asset investment) is due on Wednesday.
Locally we have two key RBA speeches, Deputy Governor Lowe (Wednesday) and Kent (Friday). NAB’s July Business Survey is on Tuesday, W-MI Consumer Sentiment and ABS Wages Wednesday.
On global stock markets, the S&P 500 was -0.30%. Bond markets saw US 10-years -5.91bp to 2.16%. On commodity markets, Brent crude oil -1.84% to $48.61, gold+0.4% to $1,094, iron ore -0.7% to $56.40. AUD is at 0.7411 and the range since Friday’s local close has been 0.7337 to 0.7420.
For full analysis, download report:
For further FX, Interest rate and Commodities information visit nab.com.au/nabfinancialmarkets
© National Australia Bank Limited. ABN 12 004 044 937 AFSL and Australian Credit Licence 230686.