Oil took centre stage last night with West Texas Intermediate down 3.8% to $45.33/bbl and Brent crude down a cool 5.0% to $49.60, WTI the lowest since March 19 and Brent below $50/bbl for the first time since January when oil selling was at its most intense.  Continued over-supply and fears of slowing demand seemed to weigh on sentiment.  Iran announced they would/could immediately lift exports by 0.5mbpd if sanctions while renewed softness in Chinese manufacturing stoked demand side concerns.

Commodity currencies came in for some treatment as a result with the Rouble (-1.6%) hit hard, along with the NOK (-0.41%), AUD (-0.38%), and NZD (-0.33%) all lower.  The CAD for once held up.  Other traded hard commodities also eased, LME metals prices declining, copper down 0.19% and nickel by 2.67%.  Gold also eased, by 0.86% to $1085.90/oz.  Iron ore prices bucked the trend, up $2.22/t yesterday in China.  US energy stocks closed down by 2.01%; other industry groups in the S&P 500 were mixed, the index

Equity markets were mixed; they were higher in Europe by 0.77% for the Eurostoxx 600 index (Athens re-opened, closing down 16.2%), but were heavy in the US, despite US Treasury yields declining further on a softer than expected US ISM Manufacturing report and still quiescent core consumer inflation. The ISM Manufacturing index missed expectations somewhat, coming in at 52.7, down from 53.5 that was also expected.  Core PCE deflator rose 0.1% as expected, though the annual rate was a rounded one point higher than expected at 1.3%.  US Treasuries rallied and Fed funds futures trimmed expectations for Fed rate rises by ½-2½ bps along the curve.

Coming up today/tonight

So onward to the RBA Board decision at 2.30.  Before then there is retail trade and international trade for June, also carrying information for the June quarter Q2 national accounts due Wednesday 2 September. For international trade, commodity prices in $A terms were more friendly to export receipts in June and should see a 2% rise in exports, aside from any unforseen volume effects.  However, already published merchandise imports points to a 3% imports rise, the trade deficit expected to rise again to $A3.1bn from $A2.75bn in May.

For retail sales, we look for a pick-up to 0.5%, a quickened pace, helped further by the improved labour market and a positive fallout for household goods suppliers from rising residential construction.  Retail volumes make up 31.8% of household consumption and 17.4% of GDP and we look for real growth of 0.3% based, the market at 0.4%.

Based on encouraging domestic news, we look for the RBA to remain on hold at 2.00%.  The unemployment rate has been steady, business activity shown some overall improvement while housing activity (in the Eastern States anyway) has been upbeat.  We’ll be particularly interested in what they have to say about any forecast changes and spare capacity (some shaving of medium term growth and thus less spare capacity?) and the dollar (recognition of its fall and that beneficial effects are coming through), that should provide some positive tilt for the AUD.  The July RBA commodity price index is then due later this afternoon (4.30pm); not all market sensitive but provides a very good track for the terms of trade.

Tonight it’s light on for European and US releases; in the US, the ISM New York index for July is due along with the June factory orders report.  The main interest will be for Kiwi watchers with the first Global Dairy Auction for this month, and following a large 10.7% in the previous auction.

Overnight

Commodity prices and currencies lower: Eurostoxx 600 +0.8%, Dax +1.2%, CAC +0.7%, FTSE -0.1%.  Dow -92 points to 17,598, -0.5%, S&P 500 -0.5%, Nasdaq -0.3%, VIX 12.56 +3.6%.  Mumbai -1.1%, Nikkei 225 -0.3% and ASX 200 -0.3%; ASX SPI futures this morning -0.0%.  US bond yields: 2s at 0.66% (0), 10s at 2.15% (-3).  WTI oil at $45.36 (-3.7%), Brent at $49.67 (-4.9%), Malaysian Tapis (yesterday) $52.79 (-2.3%).  Gold at $1085.80/oz (-0.8%). Base metals: LME copper -0.2%, nickel -2.7%, aluminium -0.4%. Iron ore $55.6/t +4.2% Chinese steel rebar futures -0.6%. Soft commodities spot futures: wheat +0.0%, sugar -2.2%, cotton -0.3%, coffee -1.0%.  Euro Dec 14 CO2 emissions at €7.96/t (1.0%). The AUD/USD’s range overnight 0.7260-0.7299; indicative range today 0.7240-0.7315 ahead of retail sales and the RBA; the AUD/USD is 0.7287 now

EC final Manufacturing PMI (Jul) 52.4 (Prelim: 52.2)

UK Manufacturing PMI (Jul) 51.9 (L: 51.4; E: 51.6)

US ISM Manufacturing (Jul) 52.7 (L: 53.5; E: 53.5); PCE core deflator (Jun) 0.1%/1.3% (L: 0.1%/1.2%; E: 0.1%/1.2%); Market Core PCE deflator 0.1%/1.0% (L: 0.1%/1.1%0

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