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What You Need to Know for Wed, Aug 8th - Major Themes by Geolocation
Australia/NZ:
The RBA left rates unchanged at 1.5%, stretching yet another month its record-long ‘no-move’ stand. Prior decision 1.50%. The language was fairly balanced, with some minor tweaks to the inflation outlook, which saw a downgrade short-term although is expected to pick up above previous expectations from 2019 and beyond. That should reinforce the RBA’s low rates ‘status quo’ for 2018 and the early part of 2019. With regards to the labour market, the RBA was less equivocal, noting that the unemployment rate is headed towards 5% and as such, we should see some wage pressures pick up in the foreseeable future.
The Australian bond yield curve has been anchored near lows, as short-dated 2-yr yield spreads stay buoyant above the 2% mark, while the long-dated 30-yr paper remains fairly depressed at 3.16% in what has been a steady downtrend. The flattening of the curve implies possible rate hikes coming up next year, but the market is far from factoring in any aggressive tightening campaign by the RBA.
Next focus for Australian traders will be the RBA Monetary Policy Statement on Friday, where new snippets of insights should be provided, as the Central Bank will go into more in-dept about economic and financial conditions, hopefully shedding a light on the implication of the Chinese economic slowdown to the Aussie economy, as well as understanding new updates on prices, employment, housing, etc.
Reserve Bank of Australia Governor Philip Lowe gave a speech at the Anika Foundation Lunch. His presentation could be defined as fairly lame, given that no surprise in rhetoric were presente. The RBA still sees no strong case for near-term rate move, adding next rate move likely to be up if economy evolves as expected
The RBNZ's New Zealand 2 year inflation expectations for Q3 came higher at 2.04% y/y vs 2.01% exp, with the rise driven by non-tradeable inflation. Meanwhile, 1 year expectations came at 1.86% vs 1.80% prior.
Next up on Thursday we have the RBNZ monetary policy decision, where the outcome is not as predictable as the RBA, as the RBNZ must reconcile a more challenging landscape of higher inflationary pressures near term, coupled with lower medium-term inflation estimates. Besides, the risks for the NZ economy appear to be mounting on lower consumer/business confidence. The CB is expected to announce a no change in rates at 1.75%, which would then shift all the attention towards the RBNZ's projected OCR path.
China:
China end-July FX reserves came slightly higher at $3.118 trillion vs $3.107 trillion prior. What this implies is that the PBoC had no need to step in and intervene in the Chinese Yuan during its relentless fall. It also telegraphs that the moves must have been perceived as fairly orderly and on generally low volumes.
China's State Administration of Foreign Exchange sent a message of reassurance to the market by saying that FX reserves will remain stable overall while pointing at higher uncertainty in international financial markets.
China’s trade balance figures came lower-than-expected in both yuan and usd terms. However, the crux of the matter here is the pick up in exports and imports, including to and from the US y/y.
Big moves in the Chinese Yuan overnight, with USD/CNY snapped down towards the 6.8 vicinity as the PBoC appears to have drawn, temporarily, a line in the sand in Yuan short speculators after it increased the reserve ratio to 20% in FX forwards, essentially making it more expensive to sell the currency. We saw some spillover effect into the Shanghai Composite, up almost 3%, which in turn ratched up risk trades across the board. As a proxy for risk trades, the Aussie was one of the main outperformers while the USD lagged.
China State Researcher issues updated figures, noting that GDP is set to grow 6.7% in H2 2018. Also sounding optimistic about upward revisions to fixed-asset investment, retail sales and inflation.
Japan:
The Bank of Japan published the latest summary of opinions for the July 30/31 meeting, a meeting where it was decided to widen the wiggle room of the JGBs yield range by an extra 10bp. A highlight included a more direct narrative towards the need to scrutinize and review policy framework to mitigate demerits of easy policy. Interestingly, the report also noted that the Central Bank must adopt a greater focus towards forward guidance on interest rates to show BOJ’s unwavering commitment to hitting price goal. As per rates, the BOJ found it appropriate to allow long-term rates to move double the current range of around -0.1 to 0.1 pct, while allowing long-term rates to move at a range of around -0.25 pct to 0.25 pct.
Europe:
We have a vacant calendar with regards to European data. In the last 24h though, we learnt that the France June trade balance came worse-than-expected at -€6.25 bn vs -€5.52 bn prior, extending the downtrend after the figures peaked out around -3.5 bn last December. Any way you slice it, one can imagine the EUR will use the data as a factor to present to the US when coming to the table to negotiate a trade deal with the US.
Germany June trade balance was further inflated to €21.8 billion vs €20.9 billion prior, with exports holding up quite well. The data is in stark contrast to the numbers seen by France. One one hand it won’t help the case to broker a trade deal with the US when details get negotiated but on the other hand, German officials can breathe a sigh of relief as worries on a possible slowdown in activity amid trade war talks is not yet feeding through into the actual numbers, despite other areas such as industrial activity show more worrisome signs.
As a reminder, European-based indicators are largely non-volatile events for the EUR short-term but have serious implications for the economic outlook of the region going forward, and as such it’s constantly analyzed by bond traders. In this front, it’s worth pointing out the slump in German bond yields during August, causing the curve to flatten towards levels not seen since late 2016, last at 1.64.
UK:
An uneventful day in terms of economic data from the UK on Tuesday. BOE's McCafferty spoke to LBC Radio, saying that “It's a reasonable rule of thumb to expect a couple more rate hikes over the next couple years.”
According to a Bloomberg headline, quoting an official familiar with the matter, the UK appears to be mulling a plan to push the Brexit deal deadline from mid-Oct into the end of November on the basis that Trump will act as an inevitable distraction heading into the G-20 summit. However, other sources are suggesting that the actual intentions from the EU are to bring the deadline closer to the third week of Sept. Go figure. Short term, the UK is still awaiting a response to the strategic white paper sent to the EU authorities.
UK July Halifax house price index stood at +1.4% vs +0.2% m/m exp. In terms of historical data, it shows the trend is still down overall but short term it adds to the slew of positive data out of the UK in recent times. That said, make no mistake, Brexit is the absolute main driver and the BoE has already stated that they intend to raise rates at a paltry pace of one per year, so you can probably place this data in the back pocket for now.
US/Canada:
A leaked document suggests Putin lobbied Trump on arms control, according to Politico. It suggests he was interested to extend the Obama-era nuclear-reduction treaty. If the story gets more airtime, watch potential volatility in pairs such as the USD/JPY.
US June JOLTS came at 6662K vs 6625K exp. Looking at all the details, it’s an overall solid report. At this stage, is abundantly clear that the labour market remains very strong. However, for the Fed to flex its muscle on more aggressive tightening, wages must be the component to show further strength.
In Canada, we saw a disappointing July Ivey PMI at 61.8 vs 63.1 prior. The reaction in the Loonie was rather tame, especially as CAD flows originated from areas of greater focus. Not to mention that the Markit PMI has now taken over as the main predictor for the state of the manufacturing sector in Canada.
Saudi Arabia has frozen all trade and investment with Canada, which is further evidence of the sharp deterioration in relationships between the two Oil-rich nations. Further headlines included that Saudi Arabia has summoned the ambassador to Canada for consultation, according to Saudi Press Agency. The news follows an ongoing dispute in which Canada demands the release of rights activists out of Saudi Arabia. The present sum of investment by Saudi Arabia in Canada looks too low to have a significant impact on the Loonie though.
-----------------
As Head of Market Research at Global Prime with over a decade of experience in capital markets, I focus on providing expert market analysis from a technical and fundamental standpoint to Global Prime’s global clients and media outlets, with currencies the area of most expertise and dedication.
My views on the FX market are insightful and actionable, connecting the dots to interpret market dynamics and uncover opportunities. I dive into monetary and fiscal policies, economic data, geopolitics & macro fundamentals. My role also includes oversight of Global Prime’s brand reach globally.
LinkedIn profile: https://www.linkedin.com/in/ivan-delgado-79b770a/
Australia/NZ:
The RBA left rates unchanged at 1.5%, stretching yet another month its record-long ‘no-move’ stand. Prior decision 1.50%. The language was fairly balanced, with some minor tweaks to the inflation outlook, which saw a downgrade short-term although is expected to pick up above previous expectations from 2019 and beyond. That should reinforce the RBA’s low rates ‘status quo’ for 2018 and the early part of 2019. With regards to the labour market, the RBA was less equivocal, noting that the unemployment rate is headed towards 5% and as such, we should see some wage pressures pick up in the foreseeable future.
The Australian bond yield curve has been anchored near lows, as short-dated 2-yr yield spreads stay buoyant above the 2% mark, while the long-dated 30-yr paper remains fairly depressed at 3.16% in what has been a steady downtrend. The flattening of the curve implies possible rate hikes coming up next year, but the market is far from factoring in any aggressive tightening campaign by the RBA.
Next focus for Australian traders will be the RBA Monetary Policy Statement on Friday, where new snippets of insights should be provided, as the Central Bank will go into more in-dept about economic and financial conditions, hopefully shedding a light on the implication of the Chinese economic slowdown to the Aussie economy, as well as understanding new updates on prices, employment, housing, etc.
Reserve Bank of Australia Governor Philip Lowe gave a speech at the Anika Foundation Lunch. His presentation could be defined as fairly lame, given that no surprise in rhetoric were presente. The RBA still sees no strong case for near-term rate move, adding next rate move likely to be up if economy evolves as expected
The RBNZ's New Zealand 2 year inflation expectations for Q3 came higher at 2.04% y/y vs 2.01% exp, with the rise driven by non-tradeable inflation. Meanwhile, 1 year expectations came at 1.86% vs 1.80% prior.
Next up on Thursday we have the RBNZ monetary policy decision, where the outcome is not as predictable as the RBA, as the RBNZ must reconcile a more challenging landscape of higher inflationary pressures near term, coupled with lower medium-term inflation estimates. Besides, the risks for the NZ economy appear to be mounting on lower consumer/business confidence. The CB is expected to announce a no change in rates at 1.75%, which would then shift all the attention towards the RBNZ's projected OCR path.
China:
China end-July FX reserves came slightly higher at $3.118 trillion vs $3.107 trillion prior. What this implies is that the PBoC had no need to step in and intervene in the Chinese Yuan during its relentless fall. It also telegraphs that the moves must have been perceived as fairly orderly and on generally low volumes.
China's State Administration of Foreign Exchange sent a message of reassurance to the market by saying that FX reserves will remain stable overall while pointing at higher uncertainty in international financial markets.
China’s trade balance figures came lower-than-expected in both yuan and usd terms. However, the crux of the matter here is the pick up in exports and imports, including to and from the US y/y.
Big moves in the Chinese Yuan overnight, with USD/CNY snapped down towards the 6.8 vicinity as the PBoC appears to have drawn, temporarily, a line in the sand in Yuan short speculators after it increased the reserve ratio to 20% in FX forwards, essentially making it more expensive to sell the currency. We saw some spillover effect into the Shanghai Composite, up almost 3%, which in turn ratched up risk trades across the board. As a proxy for risk trades, the Aussie was one of the main outperformers while the USD lagged.
China State Researcher issues updated figures, noting that GDP is set to grow 6.7% in H2 2018. Also sounding optimistic about upward revisions to fixed-asset investment, retail sales and inflation.
Japan:
The Bank of Japan published the latest summary of opinions for the July 30/31 meeting, a meeting where it was decided to widen the wiggle room of the JGBs yield range by an extra 10bp. A highlight included a more direct narrative towards the need to scrutinize and review policy framework to mitigate demerits of easy policy. Interestingly, the report also noted that the Central Bank must adopt a greater focus towards forward guidance on interest rates to show BOJ’s unwavering commitment to hitting price goal. As per rates, the BOJ found it appropriate to allow long-term rates to move double the current range of around -0.1 to 0.1 pct, while allowing long-term rates to move at a range of around -0.25 pct to 0.25 pct.
Europe:
We have a vacant calendar with regards to European data. In the last 24h though, we learnt that the France June trade balance came worse-than-expected at -€6.25 bn vs -€5.52 bn prior, extending the downtrend after the figures peaked out around -3.5 bn last December. Any way you slice it, one can imagine the EUR will use the data as a factor to present to the US when coming to the table to negotiate a trade deal with the US.
Germany June trade balance was further inflated to €21.8 billion vs €20.9 billion prior, with exports holding up quite well. The data is in stark contrast to the numbers seen by France. One one hand it won’t help the case to broker a trade deal with the US when details get negotiated but on the other hand, German officials can breathe a sigh of relief as worries on a possible slowdown in activity amid trade war talks is not yet feeding through into the actual numbers, despite other areas such as industrial activity show more worrisome signs.
As a reminder, European-based indicators are largely non-volatile events for the EUR short-term but have serious implications for the economic outlook of the region going forward, and as such it’s constantly analyzed by bond traders. In this front, it’s worth pointing out the slump in German bond yields during August, causing the curve to flatten towards levels not seen since late 2016, last at 1.64.
UK:
An uneventful day in terms of economic data from the UK on Tuesday. BOE's McCafferty spoke to LBC Radio, saying that “It's a reasonable rule of thumb to expect a couple more rate hikes over the next couple years.”
According to a Bloomberg headline, quoting an official familiar with the matter, the UK appears to be mulling a plan to push the Brexit deal deadline from mid-Oct into the end of November on the basis that Trump will act as an inevitable distraction heading into the G-20 summit. However, other sources are suggesting that the actual intentions from the EU are to bring the deadline closer to the third week of Sept. Go figure. Short term, the UK is still awaiting a response to the strategic white paper sent to the EU authorities.
UK July Halifax house price index stood at +1.4% vs +0.2% m/m exp. In terms of historical data, it shows the trend is still down overall but short term it adds to the slew of positive data out of the UK in recent times. That said, make no mistake, Brexit is the absolute main driver and the BoE has already stated that they intend to raise rates at a paltry pace of one per year, so you can probably place this data in the back pocket for now.
US/Canada:
A leaked document suggests Putin lobbied Trump on arms control, according to Politico. It suggests he was interested to extend the Obama-era nuclear-reduction treaty. If the story gets more airtime, watch potential volatility in pairs such as the USD/JPY.
US June JOLTS came at 6662K vs 6625K exp. Looking at all the details, it’s an overall solid report. At this stage, is abundantly clear that the labour market remains very strong. However, for the Fed to flex its muscle on more aggressive tightening, wages must be the component to show further strength.
In Canada, we saw a disappointing July Ivey PMI at 61.8 vs 63.1 prior. The reaction in the Loonie was rather tame, especially as CAD flows originated from areas of greater focus. Not to mention that the Markit PMI has now taken over as the main predictor for the state of the manufacturing sector in Canada.
Saudi Arabia has frozen all trade and investment with Canada, which is further evidence of the sharp deterioration in relationships between the two Oil-rich nations. Further headlines included that Saudi Arabia has summoned the ambassador to Canada for consultation, according to Saudi Press Agency. The news follows an ongoing dispute in which Canada demands the release of rights activists out of Saudi Arabia. The present sum of investment by Saudi Arabia in Canada looks too low to have a significant impact on the Loonie though.
-----------------
As Head of Market Research at Global Prime with over a decade of experience in capital markets, I focus on providing expert market analysis from a technical and fundamental standpoint to Global Prime’s global clients and media outlets, with currencies the area of most expertise and dedication.
My views on the FX market are insightful and actionable, connecting the dots to interpret market dynamics and uncover opportunities. I dive into monetary and fiscal policies, economic data, geopolitics & macro fundamentals. My role also includes oversight of Global Prime’s brand reach globally.
LinkedIn profile: https://www.linkedin.com/in/ivan-delgado-79b770a/