July 29, 2016

Markets Today: Gimme Gimme Gimme (Stimulus)

Gimme Gimme Gimme was ABBA’s most successful hit in Japan, reaching No.17 on the billboard charts in 1979. It might be time to dust that record off today ahead of the Bank of Japan meeting decision at around 12.45pm AEST.

Gimme Gimme Gimme was ABBA’s most successful hit in Japan, reaching No.17 on the billboard charts in 1979. It might be time to dust that record off today ahead of the Bank of Japan meeting decision at around 12.45pm AEST.

A quiet overnight session with little in the way of top tier data flow apart from company reporting season. Again, anything Japanese related has been volatile with markets gyrating on rumours of the extent of fiscal and monetary stimulus. While a coordinated fiscal and monetary bazooka is less likely, a recent article by TradeTheNews.com suggests some BoJ Board Members favour closer co-operation with the government. The end result was that the Yen finished unchanged, the Nikkei fell 1.1% and Japanese bond yields rose 1.7 bps to be -0.27%.

Global equities were little changed apart from Europe where banking stocks helped drag the EuroStoxx down 1.1%, with disappointing earnings results from Deutsche Bank. US equities (S&P500) rose 0.2%, though did conceal some company specific moves with Ford falling sharply on disappointing earnings, offset by solid earnings from Facebook and MasterCard (Alphabet-aka Google also reported better earnings after the close). There was little in the way of US data with most second-tier indicators in line with consensus (Initial Jobless Claims +266k against expectations of +262k).

There was also little action in major bond yields. US Treasury yields rose 1 bps to 1.51% (after having had fallen 6bps the previous day) while German Bunds fell 1 bps to -0.09%. It appears markets have concluded that the Fed is not hankering to hike rates in the near future and still prices only around a 50% chance of a hike by year end. That sentiment also probably contributed to broad US dollar weakness, with the Euro, Canadian dollar, Aussie and Kiwi all higher by around 0.2%, while the British pound fell 0.3%.

In the commodities space, oil prices have continued their downward slide with oil prices falling 1.9% to US$41.11 a barrel (WTI measure), the lowest level since mid-April, and yesterday the EIA said US crude inventories and gasoline stockpiles rose. Iron ore has been the surprising outperformer, rising 3.5% to US$60.7 a tonne, at its highest level since early May.

Coming Up

Markets will be focused on three events today. The Bank of Japan (BoJ) meeting decision at 12.45pm AEST, and later tonight Q2 GDP figures for the US and the Eurozone.

First up the BoJ. While a monetary bazooka is not expected at this meeting, some form of stimulus is with 32 out of 42 analysts expecting the BoJ will expand their assets purchase program – probably for ETFs but also possibility for government bonds. Japan’s Finance Minister Aso has also made it clear that he expects the BoJ to do something (or in his words to do the utmost to achieve the inflation target). While the monetary stimulus will be important in providing support to the fiscal package, the fiscal package is expected to be vastly more important with papers reporting a ¥28 trillion fiscal program to be announced in early August.

US Q2 GDP is the pick of the overnight data. The Atlanta Fed’s GDPNow series is now pointing to a 1.8% annualised increase, while the median expectation by economists is 2.5% — so there is the potential to disappoint. Also potentially interesting is the Fed’s Williams (non-voter) who is speaking at a policy dialogue on “What’s Left in the Fed’s Toolkit”. While there is no text for the event, there is the opportunity to provide some flavour to the more positive July Fed Statement and whether current market pricing discounting the likelihood of a Fed rate hike by year end is appropriate. Other US data tonight includes the Chicago PMI.

Eurozone GDP is also worth looking at, especially in the context of judging the pace of activity pre-Brexit.

Also out today domestically is the RBA credit statistics, which usually has little market reaction. NAB is similar to the market consensus in expecting a 0.5% m/m increase. Across the ditch, the ANZ business survey is the most important Kiwi data release today.


On global stock markets, the S&P 500 was +0.18%. Bond markets saw US 10-years +0.85bp to 1.51%. In commodities, Brent crude oil -1.86% to $42.66, gold+0.4% to $1,332, iron ore +3.5% to $60.70. AUD is at 0.7506 and the range since yesterday 5pm Sydney time is 0.7495 to 0.7548.

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