An uneventful end to the week on Friday but one where mild upside surprises in US industrial production and PPI helped deliver slightly higher US treasury yields out to 10 years and a marginally firmer dollar.

In FX, DXY ended the NY session +0.08%, the broader BBDXY also +0.08% (AUD/USD just failed to revisit 0.74, closing in NY +0.26% at 0.7379.  EM currencies were mostly +/- less than 0.5%, though BRL added 1%. The latter move may not survive long after tens of thousands of Brazilians hit the streets (and beaches) yesterday to demand the impeachment of President Rouseff in relation to the Petrobras (“Car Wash”) corruption scandal.

USD/CNY ended Friday’s onshore China session at 6.3912, falling from 6.40 in the last half hour of trade and suggesting PBoC directed buying of CNY.  USD/CNH also dipped right at the end of the NY session, to 6.4493 from 6.4555.  We’d suggest this means PBoC will be hoping to set Monday’s fix no higher than Friday’s 6.4010, though if it’s no more than very slightly higher (or lower) than this, spill-over to AUD and Asia EM FX should be negligible.

There’s no strong signal from Friday’s RMB moves for AUD (or NZD) today, the overall message from Friday being that the guts of the CNY devaluation orchestrated by the PBoC’s starting last Tuesday is probably behind us. Fixation with the daily CNY fix threatens to quickly become ‘so last week’.  We should now quickly return to fretting about the Fed.

In rates, US 2s ended the NY session +1.5bps at 0.7218% with the market-implied probability of a September rate rise lifting to 46%. 10 year Treasuries added 1.2bps to 2.1977%. US stocks finished modestly firmer, the S&P500 +0.39% at 2091.5.

As for the data, US July industrial production beat expectations at +0.6% (0.3% E) though June was revised down to 0.1% from 0.3%.  Manufacturing rose by 0.8% (0.4% expected) with June revised to -0.3% from 0.0%.

US July PPI rose by 0.2% for the headline (Final Demand) index (+0.1%E, +0.4% P) to be -0.8% Y/Y from -0.7% and -0.9% expected.  Core (ex food and energy) PPI was stronger than expected at +0.3% (0.1%E, 0.3%P) to be +0.6% Y/Y (0.5% E, 0.8%P).

The University of Michigan’s August preliminary consumer sentiment index fell to 92.9 from 93.1, against expectations for  rise to 93.5, though the current conditions reading at 107.1 from 107.2 was better than the 106.5 expected.  Their 5-10 year inflation expectations reading slipped to 2.7% from 2.8%, while the one year measure held steady at 2.8%.

Earlier Friday, the first estimate of Eurozone Q2 GDP fell shy of expectations at +0.3% (0.4%E, 0.4%P) after France reported flat GDP on the quarter (+0.2%E) and Germany +0.4% (0.5%E). Final July EZ CPI was unrevised at 0.2%, as was the core measure at 1.0%.

CoreLogic RP Data’s weekend auction clearance report shows the preliminary 7-capital city average clearance rate at 76.3% down slightly from a final 76.9% last weekend but still well up on the 70.8% clearance rate in the same week last year. Auction volumes were down on a year ago, 2512 vs. 2512.

Sydney’s clearance rate rose back above 80% (80.3) for the first time in 5 weeks from a final 78.3% last week and Melbourne’s slipped to 76.5% from 78.5%

Coming Up

It’s a very quiet week ahead both locally, while the main (known global; event risks probably reside with Wednesday’s FOMC minutes and July US CPI.

For Australia, on the data front there are only a few second tier reports with the likes of the weekly ANZ-Roy Morgan Consumer Sentiment index on Tuesday, along with July motor vehicle sales, followed by the Westpac Leading Index and Skilled Vacancies for July.  Tuesday’s RBA minutes would normally be keenly anticipated, though to an extent have already been pre-empted by the August SoMP. Potential nuggets will be few and far between.

Internationally, there are several key monthly releases due. On housing these come courtesy of the NAHB Housing Market Index on Monday, Housing starts/permits Tuesday, and Existing Home Sales on Thursday. A key focus will be Wednesday’s July CPI followed by the August Philly Fed and July Leading Index Thursday.

Two Fed speeches are scheduled, with arch dove, Minneapolis Fed President Kocherlakota (non-voter) and centrist San Francisco Fed president Williams (voter) both speaking on Thursday. This will be the day after the FOMC minutes, (04:00 AEST Thursday) where, recall, the post-meeting statement showed the Fed to be inching towards a first rate hike in over 9 years.

Elsewhere China property prices (Tuesday) and Japan GDP (this morning – expected -0.5% QoQ) will both draw interest

Overnight

On global stock markets, the S&P 500 was +0.40%. Bond markets saw US 10-years +1.23bp to 2.20%. On commodity markets, Brent crude oil -0.89% to $49.19, gold-0.3% to $1,113, iron ore -0.5% to $56.74. AUD is at 0.7377 and the range since Friday’s local close has been 0.7366 to 0.7395.

For full analysis, download report:

• Markets Today: 17 August 2015 (PDF,288KB)

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