August 24, 2016

Markets Today: Poundcake

It’s been a rather uneventful night for most of the major currencies, with the possible exception of Sterling.

It’s been a rather uneventful night for most of the major currencies, with the possible exception of Sterling.  The Pound was being bought in the lead up to the release of the August CBI trends survey, holding on to those gains in its aftermath, GBP/USD this morning knocking on the door of 1.32, at 1.3195 as we go to print.  Sterling (and other non-USD majors) might well have pushed on, but for a strong report on US housing (see below).  The AUD this morning is trading within recently familiar ranges, at 0.7615.

The UK CBI industrial trends survey for August revealed total orders came in at -5, barely changed from -4 in July when the market was expecting a print of -10.  Bear in mind that when you look at this survey, even -4/-5 levels of the past two months are in fact better bar one month than any reading so far this year, averaging -11 in the first half of the year.  It would be difficult to say then with any conviction that UK industrial orders have been hit in the aftermath of the Brexit poll.  Even on the export side, CBI export orders had worsened measurably to -22 in July from -14 in June, but even that July level was not out of kilter with year to date experience.  In August, the reading was -6, up from -22 (and a two year high for export orders), a sign that UK industrial companies are seeing with better market conditions and/or getting some boost from a more competitive sterling.  The CBI reported some increase in selling prices.

As far as industrial market conditions on the Continent were concerned in August, the preliminary estimates of Eurozone Manufacturing PMI for August were virtually steady, at 51.8 from 52.0, almost hitting the unchanged consensus.  Germany’s also had a small two tenths miss.  The Zone’s Services PMI increased modestly from 52.9 to 53.1, slightly beating consensus as did the Composite index, by one tenth.  Nothing to see here for the market from these releases.

The US though had a very strong month for New Home Sales in July.  Sales surged 12.4% with some major regions having the best sales since before the GFC, a sign of a resilient labour market and near record low 30-year mortgage rates below 3½%.  The USD could make only the most modest gains though, also with little change in US yields, even though US equities rose ¼% and oil was higher.  US home builder stocks rose 1.84%, so clearly the report was seen in a positive light for that sector.

Coming up

Australia’s Construction Work Done (CWD) for the June quarter is probably the meatiest of today’s local regional releases. There is also the New Zealand trade balance for July at 845 AEST, followed by Australia’s Skilled Vacancies report for July, a partial leading indicator of labour demand. As for the CWD report, NAB and the consensus are picking a 2% net decline for this series as rising dwelling investment and continued likely large falls in resource-centric engineering construction compete for the prevailing influence. This is the second of the quarterly national accounts partials after June quarter retail trade volumes and gives us a good look into the status of fixed capital expenditure for the June quarter ahead of GDP in a fortnight.  New Zealand also has new residential lending for July out early this afternoon.

As for tonight’s reports, the main focus point initially will be any revisions to Germany’s initial print of 0.4% for its GDP in the June quarter. There is also British Bankers’ lending figures for housing – usually a market non-event but you never know given the post-Brexit poll focus and as this one is for July – then some more focus on the US on housing with two house price measures and the July existing home sales report sector of the economy has been quite consistently robust.


On global stock markets, the S&P 500 was +0.20%. Bond markets saw US 10-years +0.34bp to 1.55%. In commodities, Brent crude oil +0.71% to $49.51, gold+0.2% to $1,346, iron ore +0.8% to $61.75. AUD is at 0.7615 and the range since yesterday 5pm Sydney time is 0.7615 to 0.7655.

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