Friday was pretty quiet, in FX especially, after US CPI data failed to surprise, following a slow Asia session where activity was constrained by end-of-Ramadan holidays in Singapore, Malaysia and Indonesia. Gold was one of the biggest movers on the night, -$11.25 to a new 5-year low of $1134.14. This followed an announcement by China that its gold reserves had risen by 60% since 2009 to 1,658 tonnes (53.31m fine troy ounces), a number that underwhelmed relative to the prior beliefs of many gold analysts. The increase means that gold now accounts for just 1.6% of China’s $3tn reserves stockpile, well down on global averages thought to be closer to 10%.

Earlier Friday the Shanghai Composite added 3.5% and which means the index is now 13% up from its (July 8) recent lows.  There may be more strength to come from news Friday that the China Securities Finance Corp (CSFC), the main provider of loans to brokerage firms and for margin lending, now has access to $483bn of borrowed funds from a combination of the 5 biggest state owned banks and the central bank (Bloomberg reports).  This is massive compared to the mere $19bn stock-support fund established by the country’s 21 largest brokerage firms and CSFC two weeks ago.

The other big equity news Friday was a new all-time high for the NASDAQ (+0.91% to 5,210) led by a 16% jump in Google (to above $700 for the first time) after its Q2 earnings report showed profits and revenue exceeding analysts’ expectations and costs rising at their slowest pace since 2013. The Dow in contrast fell 0.19% led by the oil sector, and the S&P500 finished +0.22 at 2127.  VIX was -0.16 to 11.95 – its lowest close since 5 Dec 2014.   Lower volatility as we come into the peak northern hemisphere summer holiday season augers well for the return of some stability in the AUD in particular.

News that Germany had become the final country to ratify last Monday’s agreement as precursor to commencing talks on the 3rd bail-out package for Greece, came before European markets closed but to no market fanfare. Greece is now expected to receive bridging finance on Monday in time to redeem the bonds held by the ECB as well as the amounts overdue to the IMF.  EU official were said to be targeting mid-August for agreement on the EUR86bn new rescue plan. Greek banks will re-open Monday with still-heavy restrictions on withdrawals and transfers.

In FX EUR/USD lost a further 0.4% to 1.0830, leading the DXY 0.25% higher to 97.86.  AUD was (just) the biggest G10 loser, -0.46% to 0.7372.  The NZD in contrast managed a minor short covering rally, +0.22% to 0.6527.

The US data saw US June headline CPI +0.3% led by a 3.4% rebound in gasoline prices, with the core (ex food and energy) measure +0.2% m/m – both in line with consensus forecasts.  The rise in core CPI, led by a 0.4% in owners’ equivalent rent, pushes annual core CPI back up to 1.8% from 1.7%.  Key now will be if we soon see the Fed’s preferred core PCE deflator inflation measure pick up (from 1.3%). It should.

US June housing starts surged 9.8% on the month, with permits +9.4%. The data was flattered by a surge in permit applications and starts ahead of the June 15 expiry of a tax break for multi-family developments in the New York area. But even excluding the east coast numbers, the data still looked strong.

The University of Michigan’s July preliminary consumer sentiment index disappointed, 93.3 from 96.12 (96.0E).  Weaker equities – which have since rebounded – and higher gasoline prices are seen largely to blame.

China’s June home price data was released Saturday, showing declines on the month in 33 of 70 cities, with 27 showing increases (up from 20 in May). On Reuters’ calculations, nationwide house prices rose by 0.4% in the month, after a 0.2% may gain.  This reduced annual house price deflation to 4.9% from 5.7%, Reuters says. This is a positive omen for an (eventual) pick up in Chinese steel – and so iron-ore – demand.

Coming Up

Greece should now be out of the headlines for a few weeks  at least, as too the Chinese stock market with prices now so far off their early July lows.  .

Amid a light US (and European) calendar, the key events in our part of the world should be Australia’s CPI release on Wednesday and the RBNZ decision on Thursday (and where money markets are flirting with the notion of a 50-point cut to the OCR, with a cut of at least 25bps seen ‘nailed on’). We also have Glenn Stevens’ annual speech to the Anika Foundation lunch on Wednesday.

We’ll also get the preliminary Caixin (formerly HSBC) preliminary manufacturing PMI at 11:45 AEST on Friday. Given the jaundiced view many have taken regarding the veracity of last week’s GDP and monthly China activity data, the latter will be of particularly keen interest.  There’s nothing of particular note on today’s calendar.

Overnight

On global stock markets, the S&P 500 was +0.10%. Bond markets saw US 10-years -0.34bp to 2.35%. On commodity markets, Brent crude oil +0.32% to $57.1, gold-1.0% to $1,132, iron ore +0.2% to $50.66. AUD is at 0.7383 and the range since Friday’s local close was 0.7368 to 0.7410. Indicative range today 0.7355 – 0.7405.

For full analysis, download report:

• Markets Today: 20 July 2015 (PDF, 272KB)

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