NAB’s Chief Economist, Alan Oster provides his thoughts on the Australian and Global economy.
It’s been something of a sideways/choppy night.
We come in this morning and it’s been something of a sideways/choppy night. The dollar DXY index is little changed overall amid nothing too new on the data front, no Fed speak now with the media lock down ahead of next week’s FOMC, and US stocks little changed on net for the session. For what it is worth, the NY Empire State manufacturing index for July printed at 9.8 after 19.8 (f/c 15) though this is very much second tier.
The Aussie opened somewhat softer after closing in NY Friday at its highs. It eased off during the APAC session, getting some negative spill-over from across the ditch after RBNZ Deputy Governor Bascand’s somewhat-hidden reference buried in a speech text that a “lower NZ dollar would help rebalance growth”. The fact that such language was deliberately omitted from the press release suggested that the Bank wasn’t trying to draw attention to the NZD. Indeed, a careful reading of the speech in fact gave a positive NZD story, with a chart showing the NZD not keeping up with NZ’s record terms of trade and Bascand pointing to the improvement in NZ’s net foreign liabilities to GDP ratio as suggesting the exchange rate may be more “sustainable”.
Clearly better-than-expected Chinese GDP for the June quarter, buttressed by better growth reports for Industrial Production, Retail Sales and Fixed Asset Investment, was also AUD-supportive. After languishing below the figure for most of the APAC session, it did test higher in the London session overnight, again to at around the 0.7835 level, but has since pulled back to the figure again.
It would not have been surprising if the AUD had seen another leg up from real money flows on the back of the positive Chinese economy reports together with a move higher yesterday in the iron ore price complex. The spot benchmark Qingdao price is this morning at $66.81/t (+$1.07), Dalian futures prices for iron ore also getting support along the curve, the longer-dated May 18 contract up 2.37% against an increase in the spot price of 1.63% and the spot futures Dalian iron ore price of a tidy 4.79%. The spot Chinese steel rebar futures price inched higher by 0.17%, longer-dated futures more mixed-to a little higher, mostly, along the curve. Coal prices were also somewhat higher overnight, as were base metals, LME Copper up 1.18%.
It is of course conceivable that after the market ran on that reference to the NZD yesterday, there might be a degree of market trepidation ahead of the RBA Minutes. Would the RBA indicate more concern? Unlikely. The post-July Board Media Release contained absolutely no such new concern, again exactly repeating the reference that “An appreciating exchange rate would complicate this adjustment” (afforded by the depreciation of the exchange rate since 2013).
Note also that while the exchange rate was appreciating into the July meeting (it was then just over 0.76), that was after having eased the previous month, the TWI on 4 July higher than June but no higher than its May meeting level. It has since appreciated another 2.0%.
First up for local markets is the NZ CPI for Q2. The consensus is looking for a quarterly increase of 0.2% and annual inflation slowing to 1.9% y/y, down from 2.2%. NAB looks for an even softer 0.1% q/q, expectations wound back largely on account of the fall in petrol prices in June. The RBNZ’s May MPS forecast was 0.3%, then based on previously higher oil prices. Any “disappointment” will have to be weighed up against what the core inflation measures say. Kiwi watchers will also be alert to any material move in tonight’s Global Dairy Auction, my BNZ colleague Doug Steel, looking for a broadly neutral price outcome.
Then there are two more local and one Chinese release to watch out for at 11.30 this morning, the first being the RBA Minutes from this month’s Board meeting and the second, the new NAB Cashless Retail Sales Index, this one for June and covering cashless retail purchases whether in store or not. The other is Chinese Property Prices for June.
The Minutes will be parsed for any enhancement of the summary reference to the exchange rate. Later in the week, on Friday, the market will also be on the lookout for any comments on this front from RBA Deputy Governor Guy Debelle, and of course from the RBA’s Heath’s (Wednesday) and Bullock’s (Friday) speeches.) RBA Governor Lowe’s post-Board Media Release reflected positive references to the improving labour market and business conditions, the latter having improved further since.
Offshore, there may be some sterling volatility around the June CPI tonight if it surprises on the high side. There are no big releases in the US with Import Prices and the NAHB Housing Index out along with the Treasury portfolio capital flows data. The market will still be looking for any signs of progress with the US health care bill in the Senate.
On global stock markets, the S&P 500 was -0.01%. Bond markets saw US 10-years -1.78bp to 2.31%. In commodities, Brent crude oil -1.06% to $48.39, gold+0.5% to $1,233, iron ore +1.6% to $66.81, steam coal +0.4% to $84.30, met. coal +0.3% to $163.50. AUD is at 0.78 and the range since yesterday 5pm Sydney time is 0.7792 to 0.7838.
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