Below trend growth to continue
Back to our day jobs, with a reprieve on being political or equity analysts, we can return to the global economy. Markets also chose to ignore the after-party cleaning up in Greece, to focus on central bank speak – both actual and what is to come.
Back to our day jobs, with a reprieve on being political or equity analysts, we can return to the global economy. Markets also chose to ignore the after-party cleaning up in Greece, to focus on central bank speak – both actual and what is to come. That left equity markets modestly higher overnight, bond yields lower, oil prices higher and a modestly lower USD. GBP outperformed and AUD was higher.
The US data was surprisingly soft overnight, with retail sales dropping unexpectedly, as did the NFIB small business optimism survey. Excuses given are the drop in equities and the rise in gasoline prices, but more evidence is needed for a trend. It did depress yields though. More focus on Yellen tonight.
The UK information was more interesting, in that BoE Governor Carney, yet again, chose to remind markets that interest rate hikes are closer than they think. GBP focussed on that part of the speech, rather than the bit which said that the hiking cycle would be limited, gradual and that the peak would be far lower than historical levels. The lower than expected CPI print was also taken in its stride. Core inflation now sits at 0.8%yoyA, from 0.9%yoy.
The news from Europe was, unsurprisingly, negative: the weight of all the negative news and uncertainty did not help the ZEW sentiment survey. It fell to 42.7A from 53.7. The German’s were not quite as concerned, with the German ZEW actually rising: 63.9A (60E, 62.9P). European industrial production was quite soft. Just note that there are still events unfolding in Greece and across the Euro area, as the agreement has to be voted on by Greece (today) and the various governments. That may generate some news flow.
Australia’s NAB business survey was released yesterday and proved to be a support for the AUD. Business conditions rose to +11, from 7 and confidence also rose.
We re-enter the world of data watching and have a little rest from the event risks of the last few weeks. It’s a nice change. Data is a little more predictable and clear.
Domestically, we get consumer confidence, but the attention is going to be very much on the China data instead. Although, with the bigger events ahead, even the China data may not have any outsized reaction to data surprises.
China releases its Q2 GDP data (efficient aren’t they). That is expected to show a better quarterly result, but the annual GDP drops to 6.9% from 7%. A miss here would be the greatest market mover and the surprise would be from any better than expected outcome. But misses are very rare, it is an astonishingly accurate bunch of forecasters for this one. Industrial production and retail sales round off the releases.
It is a busy data for the central banks. In the local time zone it is the BoJ’s turn. There is some suggestion that they may improve their economic outlook, and to be fair, the Tankan survey was pretty positive, but we aren’t expecting an improvement on the characterisation of the economic recovery as ‘moderate. ’The Bank of Canada also meet, and there is more uncertainty here. Just more than half participants in the Bloomberg survey are looking for an easing to 50bp.
The key event is Fed Chair Yellen’s semi-annual testimony to the US legislature (formerly known as the Humphrey Hawkins). Given she spoke last Friday and noted that the Fed were looking to raise interest rates this year (which could be delayed or accelerated depending on the data), despite the fact that parts of the labour market were not improving as hoped and that they had yet to achieve their inflation goals. A change from this theme is not expected, but any deviation would move the USD. A more positive outlook would be the greater market mover (and a lower probability) The Fed’s Williams and George also speak and the Empire survey and industrial production data is released.
On global stock markets, the S&P 500 was +0.40%. Bond markets saw US 10-years -5.83bp to 2.40%. On commodity markets, Brent crude oil +0.95% to $58.4, gold-0.1% to $1,154, iron ore -0.5% to $50.06. AUD is at 0.7451 and the range was 0.7388 to 0.7479.
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