August 7, 2015

Markets Today: Behind in a two horse race

Interest overnight in what the BoE Governor had to say after their meeting and how “hawkish” he might be, focus of course also in their forecasts in the latest quarterly Inflation Report.

Interest overnight in what the BoE Governor had to say after their meeting and how “hawkish” he might be, focus of course also in their forecasts in the latest quarterly Inflation Report.  Was it more or less likely they would get over the line with lift-off before the Fed?  Not if last night was an indication.  The Committee voted 8-1 to keep rates unchanged, more dovish than the consensus tipping 7-2 and several analysts expecting 6-3.  Couple that barely split vote with comments from Carney noting that the Old Lady was looking at the impact of sterling on inflation and it was the catalyst that took threw a dose of cold water on rate lift-of expectations and sterling.  Two year gilts eased 4.3 bps to 0.607% while sterling dropped a big figure from over 1.56 to below 1.55 before steadying just above 1.55.

Sterling under-performed in a night when large currency moves were noticeably absent, losing some grip in the wake if the BOE announcement on “Super Thursday”, the Bank releasing the voting, the Minutes and the Inflation report.  Sterling is still 6% higher in trade-weighted terms so far this year.

There was no compelling data out of the US, weekly jobless claims almost bang on last week’s and expectations for little change ahead of payrolls tonight.

We did see though evidence that the weaker Euro looks to be supporting European industry, Germany factory orders up a perky 2.0%/7.2% in June, supported by non-Eurozone orders.

The AUD has been trading within its recent ranges, aside from the immediate confusion after yesterday’s twin spike in employment and the unemployment rate, confusing interpretation and initial market reaction.

Coming up today/tonight

AiG PCI Construction Index for July completes the PMIs for this week, both so far above 50.  We’ll see whether the residential investment upturn in sufficient to offset the resources construction wind down.  Not so far in this index; it was 46.4 in June.

Then it’s pretty much all about the RBA’s Statement on Monetary Policy at 11.30 with its general statements and outlook for local economies.  We will be paying particular close attention to the  and, of course immediate market attention on any changes to its growth forecasts, primarily as a result of RBA Governor re-thinking recently whether potential growth is now low on account of a decline in population growth.  Look for the out-year’s growth rate range to be shaved maybe a ¼% at top and the bottom, recognising this.  Also expect some validation that lower potential growth as the reason why unemployment has been tracking lower than they’d expected, yesterday’s figures notwithstanding.  Their discussion of the tempo of the non-resource economy will also be of interest and we are always interested in their special “box” mini-studies, potential candidates this time being trend growth and the mining/non-mining growth divergence.

For housing finance, we look for a 5% rebound after last month’s 6.1% decline in headline owner-occupied approval numbers.  There’s likely keener interest in investment lending approvals and these will take on extra significance from the Aug/Sep numbers (today’s are June’s) after recent rises in investment lending rates/ loan restrictions.

For NZ$ watchers, Fonterra is expected this afternoon to release its 2015/16 milk price forecast update after its board meeting today. Current conditions suggest well below the current $5.25 figure. Our BNZ colleagues suggest the milk price at season’s end will be in the vicinity of $3.80.

Then it’s payrolls tonight with the market centred on a 225K gain (L: +223K), also an unchanged unemployment rate (5.3%) with focus of course on any signs of rising wage inflation with 0.2/2.3% tipped, though last month, earnings were flat.  Canada’s labour market report is also due while in Europe, German industrial production is out as is UK trade data.


Sterling on the defensive: Eurostoxx 600 -0.8%, Dax -0.4%, CAC -0.1%, FTSE -0.1%.  Dow -121 points to 17,420, -0.7%, S&P 500 -0.7%, Nasdaq -0.8%, VIX 13.77 +10.1%.  Mumbai -0.9%, Nikkei 225 -1.6% and ASX 200 -1.1%; ASX SPI futures this morning -0.7%.  US bond yields: 2s at 0.70% (-3), 10s at 2.22% (-5).  WTI oil at $44.80 (-0.8%), Brent at $49.72 (+0.3%), Malaysian Tapis (yesterday) $51.54 (-0.5%).  Gold at $1088.70/oz (+0.3%). Base metals: LME copper +0.1%, nickel -0.1%, aluminium -0.2%. Iron ore $56.4/t -0.7% Chinese steel rebar futures -1.1%. Soft commodities spot futures: wheat +0.8%, sugar -0.6%, cotton -2.0%, coffee -1.3%.  Euro Dec 14 CO2 emissions at €7.85/t (0.1%). The AUD/USD’s range overnight 0.7315-0.7352; indicative range today 0.7225-0.7380; the AUD/USD is 0.7346 now

UK Industrial production (Jun) -0.4%/1.5% (L: 0.4%/2.1%; E: 0.1/2.2%); manufacturing production though was slightly better than expectation

US Jobless claims (w/e) 270K (L: 267K; E: 272K)

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