A further slowing in growth
It’s been a slow start to the week, not just because of yesterday’s NSW bank holiday (it’s not exactly the centre of the universe is it, much as some of us might like to believe otherwise?).
More likely it’s a case of one swallow doesn’t make a summer, markets not yet prepared to extrapolate last Fridays’ strong US employment report into a major view change about the Fed and the US dollar. Resident Fed doves James Bullard and Neel Kashkari were both out overnight reiterating they see no need for further rates rises anytime soon.
US Treasuries are now about 2.5bps back from their post-payrolls highs, but this may be more to do with lower Bund (and gilt) yields overnight and which responded to yesterday’s weaker than expected German industrial production numbers (-1.1%m/m against an expected 0.2% rise).
This also looks to have been responsible for underperformance by German and broader European stocks relative to an ongoing rise in US indices (S&P up another 0.16%). The bigger picture story here though remains the strength of the Euro and weakness of the US dollar this year and what that is doing in terms of translating offshore earnings back into local currency. Year to date, the S&P is up 11% and the DAX less than 7%. EUR/USD is up 12%. Enough said.
Far and away the biggest FX move since the start of the week has been the NZD, off 0.67% and now almost two cents back from its late July highs above 0.7550. While yesterday’s drop in 2-year inflation expectations, to 2.09% from 2.17%, looked to have had some negative impact this was hardly surprising after the reported drop in CPI in Q2 (from 2.2% to 1.7%). Rather, record long speculative positioning, judging from MM futures data, is the bigger story, with NZD then one of the bigger causalities as soon as USD sentiment became less bearish as was the case even before Friday’s US data. As noted in yesterday Global FX Strategist we see scope for further NZD underperformance out of Thursday’s RBNZ meeting.
The other big currency mover is the Rand, +1.67% on news of a secret no-confidence vote in President Zuma to take place Tuesday. If he loses, ZAR looks set to soar.
Commodity currencies in general have been softer overnight, AUD/USD spending a brief amount of time sub-0.79 (low of 0.7899) and USD/CAD +0.28%. Lower oil prices are part of the story here. OPEC and non-OPEC countries are meeting in Abu Dhabi to discuss non-compliance with previously agreed production cuts. Latest slippage is said to be due to Libya’s Sahara oil field coming back on tap after being halted on Sunday by armed protestors, while energy consultants Baker Hughes reported overnight that worldwide drilling reached its highest level in two years in July.
Following Monday’s Sydney bank holiday, initial local focus for the week gets underway with the NAB Business Survey. Not only have Business Conditions been pushing higher to June, but Business Confidence has also risen to above average levels, in contrast to the more cautious spirits of the consumer, the Westpac-Melbourne Institute measure of Consumer Sentiment (out Wednesday) is running somewhat below its long term average.
The NAB Business Survey has also been reporting a broader-based uplift in business activity, with trend increases in trading, profitability, and employment. The latter has been pointing to continued rises in prospective employment (the July ABS Labour Force report is due next week).
China trade data is also out this morning (probably 12:00 AEST or soon thereafter). Expectations are for exports to have risen by 11.0% in Y/Y dollar terms from 11.8% in June and imports to be up 18% versus 17.2% last time. The overall trade balance is seen at $45.2bn up from $42.8bn in June. That would do AUD no harm.
In Europe tonight German and French trade numbers are both due, while in the US we have the NFIB small business optimism survey where some of the post-Trump victory surge has been slipping away of late – though not hiring intentions which hit a new cycle high in last week’s pre-NFP release. Also JOLTs June job openings, seen at 5,700 (1000s) up from 5,660 in May.
On global stock markets, the S&P 500 was +0.15%. Bond markets saw US 10-years -0.72bp to 2.25%. In commodities, Brent crude oil -0.38% to $52.22, gold-0.1% to $1,257, iron ore +2.8% to $76.17, steam coal -0.4% to $95.00, met. coal +3.3% to $194.25. AUD is at 0.791 and the range since yesterday 5pm Sydney time is 0.7899 to 0.7949.
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.