July 6, 2021

Markets Today: Freedom Day for the UK and D-Day for the RBA

What follows the QE2 in September? NAB’s Ray Attrill says the market is expecting a flexible target, but that we can expect a ripple of surprises from the RBA today.

Todays Podcast


Overview I’m Free

  • OPEC+ fail to agree production increase, Brent crude tops $77
  • Quiet overnight markets with US out for Independence Day holiday
  • UK PM Johnson all but confirms July 19 as ‘Freedom Day’ when all covid restrictions become voluntary
  • RBA day; Lowe to speak at 16:00 AEDT post 14:30 YCC/QE decisions
  • NZ QSBO, US Services ISM, German orders and ZEW survey

I’m free to do what I want any old time, I said I’m free to do what I want any old time – The Soup Dragons (Jagger/Richards)


Not quite, but the UK prime Minister has all but confirmed – subject to sign off – that July 19 will now be Freedom Day, when all current covid-related restrictions on UK citizens will no longer be mandatory – before which, there will be full houses at Wimbledon at the weekend for the tennis finals and 100,000 spectators at Wembley on Sunday to watch the Euro 2020 final. These are just experiments remember (big petri dishes those) and the truth is that official policy is already lagging well behind where large swathes of the public already are, i.e. ignoring the restrictions.

No matter, the high expectations that England will be the first major country to formally start living with the virus, rather than fighting it at every turn, may have helped GBP be the second best performing G10 currency overnight (+0.2%) after NOK (+0.4%). An upward revision in the final UK June PMIs (to 62.2 from 61.7 for the Composite, also won’t have done any harm. All this is in the context of 64% of the UK adult population now being fully vaccinated, and over 80% having received at least one jab. Plans for a third booster shot in one arm alongside a flu jab in the other, remain under active consideration.

NOK outperformance follows the ‘no news’ of a failure to restart the OPEC+ talks on Monday as had been planned, after the failure at the end of last week to agree a phased production increase of as much as 500,000 per day from August, rising to 2 million barrels by December. The UAE’s insistence that it is currently bearing a disproportionate burden of cuts relative to its current capacity is, on the surface at least, the reasons for the impasse. Crude oil prices are up $1 on the news, Brent crude to above $77 for the first time since late October 2018. President Biden is not happy, with the US now in the thick of the driving season and higher gasoline prices something that almost invariably impacts negatively on US consumer confidence.

Not much movement in currencies elsewhere, but of some note CAD is among the weakest G10 pairs (0.15%) on a night when oil has pushed higher and the Bank of Canada’s latest Business Survey showed the Overall outlook lifting to 4.2 from 2.9, a record high, albeit the Future Sales Outlook index slipped to 47.0 from 52.0 (still close to all-time highs). The Bank of Canada meets next week and a further tapering of its QE purchases is generally expected.

In front of the RBA today, AUD was little moved during our day yesterday or overnight, currently sitting near 0.7530 (up les than 0.1% on last Friday’s New York close) . Neither yesterday’s Building Approvals data or final Retail Sales managed to touch the sides of either the FX or local rates markets. Building Approvals fell by a larger than expected 7.1% (market -5.0%) though April was revised up to -5.7% from -8.6%. The falls were led by detached houses and largely reflects the ending of HomeBuilder allowance, after the rush to receive approvals before the scheme expired at the end of March.. Final retail sales were +0.4%after a 0.1% preliminary read, thanks in large part to Victoria being revised up to -0.9% from -1.8%.

AUD was only temporarily impacted yesterday by China’s Caixin PMI services index falling to a 14-month low of 50.3 in June, well down on the 55.1 reading in May. With a greater focus on smaller firms, the survey is a more volatile version of the official PMI measure which also showed a fall in June. The fall in services activity has been put down to recent outbreaks of COVID19 in China, particularly in the Guangdong province and which has had a particularly big impact on travel.

Coming Up


  • RBA is at 14:30 AEDT with Governor Lowe to give a  press conference explaining the Board’s policy decisions at 16:00. A decision not to keep the object of the YCC target as the  April 24 bond rather than to the November 24 is universally expected (the Governor has already said these the only two options under consideration). On the fate of QE once the current $100bn programme ends in September, opinions are split, ranging from a halving of QE3 vs QE2 to $50bn over 6 months (the most hawkish/least dovish outcome) to full roll-over of the $100bn for six month (the most dovish). NAB sits in between looking for a quantum in the order of $75bn over 6 month. The median and modal view in the Reuters survey is for the RBA to adopt a more flexible programme to be reviewed relatively frequently, but with everyone who is forecasting this expecting the RBA to begin with initially unchanged weekly purchases of $5bn.
  • There will also be keen interest in how emphatically, or not, Governor Lowe repeats the RBA’s prior claims that it does not foresee the conditions for higher rates falling into place at least before 2024 (which it seems honour-bound to do if it maintains its 0.1% target for the April 2024 bond). The currency may well turn on how hard Dr Lowe pushes back against market pricing that currently foresees the Cash Rate at about 25bps by end-2022 and 0.70% by end 2023. If the answer is ‘very’ then the nascent AUD rally seen in the aftermath of Friday’s US payrolls report is immediately at risk.
  • NZ’s Quarterly Survey of Business Opinion (08:00 AEDT) is expected to show more evidence of widespread capacity constraints and inflationary pressure. This is the last key release ahead of the RBNZ’s Monetary Policy Review next week which surely must show a further incremental movement in policy tone towards a more hawkish stance.
  • Beyond whatever fireworks the RBA does or doesn’t set-off locally, offshore interest, including how the US market returns from its Independence Day holiday, will be from ISM Services (seen at 63.5 from 64.0), the German ZEW survey (expectations seen dipping to 75.2 from 79.4, current conditions up to 5.5 from -9.1); and German factory orders (expected +1.0% in May after -0.2% in April).

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