RBA’s Stevens repeats his hawkish stance but throws in a few surprisingly cautious comments


MAJOR HEADLINES – PREVIOUS SESSION

  • US Jul. Advance Retail Sales out at -0.1% vs. +0.8% expected and revised +0.8% prior

  • US Jul. Advance Retail Sales ex-Autos out at -0.6% vs. +0.1% expected and revised +0.5% prior

  • US Jul. Import Price Index out at -0.7% m/m vs. -0.5% expected and revised +2.6% prior

  • US Initial Jobless Claims out at 558k vs. 545k expected and revised 554k prior

  • US Continuing Jobless Claims out at 6,202k vs. 6,300k expected and revised 6,343k prior

  • US Jun. Business Inventories out at -1.1% vs. -0.9% expected and revised -1.2% prior

  • NZ REINZ Jul. House Sales out at 34.0% vs. 40.3% prior

  • NZ Jun. Retail Sales out at +0.1% m/m vs. -0.3% expected and revised +0.7% prior

  • JP Jun. Tertiary Index out at +0.1% vs. -0.3% expected and revised -0.3% prior

  • SI Jun. Retail Sales out at -8.2% y/y vs. -9.2% expected and revised -10.4% prior


THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

  • Sweden Unemployment (0800)

  • EU Euro-zone CPI (0900)

  • CA Manufacturing Sales (1230)

  • CA New Motor Vehicle Sales (1230)

  • US CPI (1230)

  • US Industrial Production (1315)

  • US Capacity Utilization (1315)

  • US Univ. of Michigan Sentiment (1400)

Market Comments:

It was certainly a day of two halves yesterday with early inputs promoting a greater appetite for risk. German, French and EU Q2 GDP numbers all surprised to the upside, with Germany and France posting positive q/q growth and as a result players were content to trade from the long EUR side, hence dragging other major currencies with it to the detriment of the dollar.

Enter the US data. US retail sales posted a surprising fall in July (-0.1% vs. +0.8% expected) and initial jobless claims were a worse 558k vs. 545k expected and 554k last. Business inventories also fell more than expected (-1.1% vs. -0.8% expected) but as a consolation import prices were down 0.7%, mostly as a result of a 2.8% fall in the price of imported petroleum. As a result, the USD regained some of its earlier losses and major currency pairs retreated from near 1-week highs.

In his semi-annual testimony before the House Economics Committee, RBA Governor Stevens was his usual hawkish self, describing the global and Australian economic outlook as better positioned than a few months ago.
He added that the Australian recession may prove to be one of the more shallow ones in recent times. All well and good, AUD caught a bid and risk appetite looked well on track. However, his next comment caught a few off guard when he said GDP could possibly contract in the next couple of quarters, and noted that some of the recent strength may be temporary with the prospect of softer consumer demand expected in the second half of the year. That put the brakes on AUD’s rise and, despite further hawkish comments towards the end of his testimony – inflation may not fall as far as expected and rates will be tightened in a timely fashion when the time is right - the damage had been done and AUD gradually eased back to opening levels.

EUR struggled to regain the 1.43 handle again as the AUD stumbled, even though Asian bourses generally followed through Wall St’s strength. Once again the exception was Shanghai which was almost 2.5% in the red at one stage. The China Daily reported that China was banning the expansion of the chaotic steel sector and would not approve any new steel projects for the next 3 years. This really took the shine off risk and we saw a general weakening in JPY crosses, the AUD succumbing the most.

It is a quiet data slate for Europe today after yesterday’s excitement with Swedish unemployment and Euro-zone CPI the major data on tap. North America wraps up this week with Canadian manufacturing sales, US CPI, industrial production, capacity utilization and Michigan sentiment.