Market Reports and Trade Recommendations by FXPRIMUS

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Daily Market Report for 8 July 2014: China Anti-Corruption Policy


Items to watch in this report

China corruption crackdown could hurt the market growth in the near term

China’s corruption crackdown is probably not the villain in the growth slowdown drama, as shown by growth in public spending and infrastructure investment, as well as anecdotal evidence from spending on some luxury items. General Secretary Xi Jinping continues to widen his corruption dragnet. Expelled from the Communist Party for bribery, he joins a roll call of senior leaders from central ministries, provincial governments and state-owned enterprises who China said were caught with their hands in the cookie jar.

Most of the time, corruption is bad for a nation’s growth. It encourages businesses and bureaucrats to engage in rent-seeking behavior rather than focusing on productive investments. It also fosters inequality that worsens social tensions. Whatever benefits there might be from greasing the wheels to get things done are not sufficient to offset those costs.

China however appears to be an exception to the rule. On Transparency International’s Corruption Perception Index, it scores above average in terms of corruption. China has recorded three decades of super-charged growth nonetheless. That begs the question: if high levels of corruption coincided with strong growth, will an anti-graft crackdown push the dial lower?

In theory, the answer is yes. The logic is simple enough. A culture of banqueting, gift giving and kick-backs paves the way to everything from government contracts for infrastructure projects to M&A deals.

A high-profile anti-corruption campaign could mean cancelled bookings at karaoke bars, less spending at luxury stores, and critically a much slower approval process of business permits and investment projects. In practice, the evidence is mixed. True, retail sales of jewelry, widely used in gift giving, are not glittering as they used to. Audis, a favorite auto for Chinese officials are not rolling out of the showroom as fast. At the same time, though, sales of Kweichow Moutai, the preferred tipple at Chinese banquets, were up 32.2% in the second half of 2013. Macao’s baccarat tables continue to welcome growing numbers of high-rolling gamblers.

German Chancellor Angela Merkel’s China visit has been marked by a spate of deals, including a new VW car plant in China. Less in evidence has been any discussion of the exchange rate, despite a fall in the Yuan from 8.34 to the Euro at the end of 2013 to 8.43 on Monday. U.S. delegates arriving for their summit with China this week might be more vocal.

 

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Daily Market Report for 9 July 2014: Slow Inflation Growth in China May Favor the Aussie


Items to watch in this report

China’s factory-gate price changes add to signs of stabilisation in the world’s second-largest economy

China’s factory-gate prices fell in June at the slowest pace in more than two years, adding to signs of stabilisation in the world’s second-largest economy. The producer-price index declined 1.1% from a year earlier, same as our forecast in Bloomberg. The consumer-price index increased 2.3%. Inflation remaining below the official goal of 3.5% gives Premier Li Keqiang room for additional stimulus if needed to deal with threats including a property-market slump. Lower inflation in China suggests that the officials still have plenty of room to exercise the stimulus measures in 2H, no matter whether it will be fiscal measures or monetary policies. Aussie and Kiwi could be the beneficiaries here.

The easing of factory deflation follows reports showing that manufacturing has expanded at a faster pace last month, indicating that the government efforts including speeding up infrastructure spending are helping to defend the economic-growth target for the year of about 7.5%. Consumer inflation suggests aggregate demand is still weak and the pace leaves enough space for additional mini-stimulus measures if that is necessary.

The targeted easing measures are likely to continue in the coming months. Government seems to not allow the growth to drop below 7.5% according to Li a month ago. China Banking Regulatory Commission (CBRC) announced that in order to adjust the methodology of the Loan to Deposit ratio calculation, they are aiming to boost the lending for small and medium enterprises (SME) and companies in rural area. Avoiding the rates to hike by a possible “interest rate corridor mechanism”, easing the property purchasing and lending restrictions as well as accelerating the fiscal spending could be the main tools.

Heavy selling off in the U.S. has happened overnight. Investors will be scouring the minutes of the Federal Reserve (Fed)’s June policy meeting, which is due to be out later on Wednesday, for any hints of a more aggressive tone. But the general view has been that the recent signs of improvement in the labor market would not have been enough to cause the US central bank to deviate from its current policy path.

Everything is still very calm now. Market has sharply scaled back to their bearish bets and the value of stocks is about to fall, with the proportion of shares earmarked for short selling at its lowest level since before the financial crisis despite warnings of renewed market enthusiasm.

The percentage of stocks that have been borrowed by short sellers who try to profit from a company’s share price falling has dropped to the lowest level in the US, UK and the rest of Europe since the years before the collapse of Lehman back in 2008.

Buoyed in parts by injections of cheap money from central banks, including the Fed asset-purchase program, leading stock markets have continued to rise this year after enjoying strong gains in 2013, forcing some hedge funds to cut their short bets to avoid being squeezed.

 

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Daily Market Report for 10 July 2014: No Surprise from China June Exports, Federal Open Market Committee (FOMC) Minutes


Items to watch in this report

Federal Reserve (Fed) policy makers were concerned that investors may be growing too complacent about the economic outlook

Some Fed policy makers were concerned that investors may be growing too complacent about the economic outlook and the central bank should be on the lookout for excessive risk-taking, according to the minutes of their June meeting.

Signs of increased risk-taking were viewed by some participants as an indication that market participants were not factoring in sufficient uncertainty about the path of the economy and monetary policy, the minutes showed. Fed officials expressed concern about low volatility inequity, currency and fixed-income markets. At the same time, it was noted that monetary policy needed to continue to promote the favorable financial conditions required to support the economic expansion.

Officials also agreed that their bond purchase program would end with a final reduction of $15 billion in buying at their October meeting if the economy progresses as they expect. At its June meeting, the FOMC continued cutting the monthly pace of asset purchases, reducing it by $10 billion for a fifth straight meeting, to $35 billion.

Exit Strategies are the main focus now. Central bankers continued discussions of a strategy for the eventual exit from the unprecedented monetary easing. It was observed that it would be useful for the committee to develop and communicate its plans to the public later this year, well before the first steps in normalizing policy become appropriate.

Many participants agreed that it “would be best” for the Fed to end reinvestment of maturing securities only when it raises rates for the first time since 2006, or even afterward. Most preferred to end after.

Fed officials are closing in on their goal of full employment faster than they had forecast, forcing them to consider accelerating their first increase in the main interest rate in eight years. The Fed has said rates are likely to remain low for a “considerable time” after it ends large scale asset purchases that are set to wind down by year end. Fed officials said in a statement after the June gathering that the economy is rebounding and will continue to expand at a moderate pace.

Better than expected employment data have brought forward expectations for higher rates. Unemployment fell to an almost six-year low last month, strengthening the case for officials to raise the main rate earlier than they had forecast. Payrolls surged in June by 288,000 workers, according to a Labor Department report released last week. The jobless rate fell to 6.1%, a level that policy makers didn’t expect to see before the end of the year.

Fed officials predicted at their June meeting that unemployment would decline to 6% – 6.1% by the end of this year. It was 6.3% in April and May.

In China, its exports slightly trailed estimates in June, suggesting support for growth from global demand will be limited as leaders try to defend their economic-expansion goal of about 7.5% this year. Overseas shipments had gained 7.2% a year earlier. Imports rose 5.5%, leaving a $31.6 billion trade surplus.

 

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Market Brief of the Week for 14 July 2014: How will the Chinese demands influence the Aussie dollar from now on?

Economic Insights

Chinese easing on lending could fail to boost the value of Aussie

Bond issuance by Chinese banks looks set to extend a 46% first-half jump, after regulators adjusted the loan-to-deposit ratio principles to help spur growth in the world’s second-largest economy. While the China Banking Regulatory Commission (CBRC) is limited by a law that says lenders can only advance 75% of their deposits, it eased the interpretation by excluding loans funded by long-term bonds from the calculation effective July 1.

The boom will boost credit expansion that fell to a three-month low in May. Demand for the increased supply of securities has been supported by the People’s Bank of China (PBoC), which has lowered financing costs by injecting cash into the interbank market and cutting reserve-ratios for some lenders.

Australia exports contribute around 20% to its Gross Domestic Products (GDP), and China is its top market. Overcapacity in the Chinese steel sector sets to limit the gain of the Aussie for longer time. But if the rising Producer Price Index (PPI) in China is sustainable in the coming months, which will be a positive sign for the Aussie as the Chinese industrial demand is sure to pick up. Still, we have a relatively dovish Reserve Bank of Australia (RBA) to cap the gain of Aussie.

Investors are moving on from last week’s Euro-zone banking wobble, nudging stocks back towards recent highs and trimming exposure to supposed safety plays such as “core” sovereign of debt and gold. The jitters have sent government borrowing costs much higher, threatening to reverse the favourable bond yields that Portugal had been enjoying since exiting its three-year adjustment programme in May. The stock market has also fallen sharply.

Government ministers and the Bank of Portugal have sought to reassure investors that the problems can be contained. Banco Espirito Santo (BES) is not at risk, they say, much less than the financial system as a whole. Officials believe that ring fencing BES from the financial woes of the Espirito Santo group, its biggest shareholder with 25%, will both protect the bank and prevent the contagion spreading to rest of the financial sector.

The mood is generally positive as traders prepare for a busy week of US corporate earnings; important economic data from China and the US; and possibly further monetary policy clues from central bankers.

Investors are also wary about a shift in the market’s expectations of monetary policy trajectory and there will be plenty of events for them to absorb in that regard this week.

Possibly the main catalyst will be Federal Reserve chairwoman Janet Yellen’s two-day testimony before Congress, starting on Tuesday. Her comments will be scrutinised for any indication of the Fed’s timing for an interest rate rise; currently deemed likely the middle of next year.

 

[FXPRIMUS_Education]

Daily Market Report for 16 June 2014: China Reported A Better Than Expected 2Q Gross Domestic Products (GDP)


Economic Insights

China GDP rose 7.5% YoY in second quarter after the government stimulus kicks in

China’s economic growth has finally accelerated from three quarters deceleration after the government sped up spending and freed up more money for loans to counter a property slump.

Its GDP rose up 7.5% in the second quarter on a year on year basis, compared with the 7.4% median estimate, but it’s in line with our forecast earlier. June industrial production and first half fixed asset investment exceeded projections as well. Industrial production rose to 9.2% in June from a year earlier. Retail sales have increased 12.4% from a year earlier. Fixed asset investment excluding rural households increased 17.3% in the first half from a year earlier.

China GDP YoY

Source: Bloomberg

Premier Li Keqiang’s government has brought forward the railway spending, reduced reserve requirements for some lenders and cut taxes to protect an annual growth goal of about 7.5% that’s under threat from a plunge in property construction and weaker home price gains.

The government has also weakened the Yuan, which was down about 2.5% against the dollar this year through yesterday. Easier credit may support regional governments in their own stimulus plans, as provinces were hit hard by slumps in energy and resources, when announced investments last month after first-quarter growth trailed their annual targets.

Overnight, Federal Reserve (Fed) Chair Janet Yellen told lawmakers the central bank must press on with record monetary stimulus to combat the persistent job-market weakness. “There are mixed signals concerning the economy,” Yellen said in response to questions during testimony to the Senate Banking Committee today. “We need to be careful to make sure that the economy is on a solid trajectory before we consider raising interest rates.”

Yellen said in her semi-annual testimony that “Although the economy continues to improve, the recovery is not yet complete,” which hints that a high degree of monetary policy accommodation remains appropriate. While unemployment fell to 6.1% last month, some of the labour-market gauges watched by Yellen shows continued weakness. The participation rate, which measures the share of working-age people in the labour force, was 62.8% last month, matching the lowest level since 1978. Among the unemployed, about a third has been out of work for six months or longer.

Even before the latest jobs report, Federal Open Market Committee (FOMC) participants raised their projections for the main interest rate for the next two years, while continuing to predict that the first increase would only occur next year.

UK inflation rose to 1.9% YoY yesterday, and sterling surged. The chance is extremely high especially after the inflation released yesterday is reaching its target at 2%. Also its housing inflation surged to 10.5% in May, highest in the past 4 years. Current macro-prudent policies may not be enough to contain the heating housing market, promoting the Bank of England (BOE) to raise the rate as early as next quarter. But we think the tepid wage growth could allow the BOE to wait until 1Q next year.

UK CPI YoY (white) vs. GBPUSD (yellow)

Source: Bloomberg

 

[FXPRIMUS_Education]

Daily Market Report for 17 July 2014: Stocks and Riskier Assets Edged Higher Overnight after Yellen’s Testimony


Economic Insights

Yellen remains calm on the current low volatility

Federal Reserve (Fed) Chair Janet Yellen said that the stock and bond valuations aren’t out of line with historical norms even as some prices seem to be on the “high side.” Yellen told lawmakers on the second day of semi-annual testimony that Fed officials are watching for excessive risk-taking, keeping in mind that low holding interest rates can prompt a “reach for yield.” She said she considers safeguarding financial stability as a Fed mandate, reserved the right to aid failing broker-dealers and called a proposal to require the Fed to adopt a rule for monetary policy a “grave mistake.” U.S. Equities rallied overnight as there were no immediate tightening threatens. Stocks broad rose overnight and extended to the Asia session this morning.

Dow Jones Industrial Average (DJIA) Overnight

Source: Bloomberg

The threats to financial stability are at a moderate level and not at very high level, Yellen said overnight. While “some pockets” are showing “stretched” valuations, traditional gauges however “are not outside of historical norms” and there are no “alarming warning signals” across the markets. She also mentioned that accommodation is necessary even if it may prompt investors to take on more risk. Yellen said she’s optimistic about the economy.
Yellen’s optimism about the economy and her acknowledgment that the recent job data is better than what the central bank expected suggest that Fed officials may be tightening the policy sooner than they anticipate, should the economic gains continue to grow. This is one of the reasons that we see the dollar rallied in the past two days.

Even after the Fed ends asset purchases, its “sizable holdings” of longer-term securities will help to maintain accommodative financial conditions, thus supporting further progress in returning employment and inflation to the mandate-consistent levels.

Regarding the exit strategy, Yellen said the plan is still current and that she expects the Fed will reiterate an intention over time to reduce the size of the balance sheet when a revised set of exit strategy principles are made public later this year. It requires the central bank to use a formula to set interest rates whichwould be a mistake, because the short-term scrutiny that would be brought on the Fed in real-time reviews of our policy decisions would essentially undermine central bank independence in the conduct of monetary policy.

What’s the investment strategy in the near term according to Yellen’s testimony?

1) U.S. Equities should continue to edge higher
2) Greenback will react to the data closely with an asymmetrical pace, more sensitive to the downside but carrying a general uptrend
3) Long end yield curve remains calm, but short term rates will go higher

Euro currency will be one of the best paring for the USD

Both targeted long-term refinancing operations (LTRO) and potential asset bank purchases introduced by European Central Bank (ECB) will boost the size of its balance sheet whilst Fed is expected to pull out of the quantitative easing by this October. This may apply downward pressure on Euro towards the end of year.

 

[FXPRIMUS_Education]

Daily Market Report for 18 July 2014: Jet MH17 Shot Down Incident Spurs Demand on Safe Haven When Geopolitical Risks Escalate


Economic Insights

Implied volatility of three-month options for G7 currencies rose

Overnight, Malaysian Airline jet was shot down over eastern Ukraine, killing everyone on board, in an attack that the government in Kiev have blamed on the pro-Russian rebels. The separatists however denied the accusation. The incident comes just days after the U.S. said that the pro-Russian rebels are getting weapons from Russia and have tightened sanctions against the country.

Heightened geopolitical tensions sent investors rushing for safe havens. Implied volatility of three-month options of G7 currencies rose up to 5.48% after dropping to a record of 5.11% on July 3. The Yen has gained 1.4% in the past month, while the dollar gained 0.8%. Australia’s triple-A credit ratings and this year’s currency had climbed 4.8%, as yield starved investors, particularly those in Japan, put their cash into more lucrative but safe currencies.

China’s new home prices fell in a record number of cities, which was tracked by the government as developers cut the prices to boost sales volume. Prices fell in 55 out of the 70 cities last month since May. The data presented in a statement today showed that it is the highest since January 2011, when the government had changed the way it compiles the statistics. Prices in Shanghai and the southern city of Guangzhou fell 0.6% each since May, which is the biggest drop since January 2011, while they declined 0.4% in Shenzhen. Prices fell 1.7% in the eastern city of Hangzhou, making it the largest monthly decline among all the cities.

Some Chinese cities have started to reduce property edges to stimulate the local market, while developers have cut prices since March to lure more buyers. The central bank in May called on the nation’s biggest lenders to accelerate the granting of mortgages, and urged them to give priority to first-home buyers.
Private data also signalled that the housing market is cooling down. Prices fell for the second straight month in June, after the fall of price for the first time in May since June 2012.

But the lending figures in China continue to remain at high levels. China has led 12 emerging markets in leverage growth since the global financial crisis, based on an International Monetary Fund (IMF) report. The nation’s banking sector credit to Gross Domestic Products (GDP) ratio jumped up 28.8 percentage points from 2008 to 2013, while the ratio for non-financial firms’ bank credits surged 42 points. The household debt ratio rose 13.6 points and the government ratio climbed 5.4 points. Social financing to GDP reached 206% in June, vs. 125% back in 2008. Rising leverage may fuel banks’ credit risks.

In the U.S., James Bullard said that the Federal Reserve (Fed) may have to raise rates sooner than they had planned as unemployment falls and inflation accelerates. He also mentioned that if the macroeconomic conditions continue to improve at the current pace, the normalisation process may need to begin sooner rather than later. Fed chair Janet Yellen told lawmakers two days ago the Fed plans to press on with record easing to combat the persistent weakness in the job market. She repeated that the central bank will probably keep the interest rates low for a considerable period after ending monthly bond purchases, which she said might announce at the October policy meeting.

Normalisation will take longer time, and current policy settings are far from normal, suggesting an earlier start to tightening. Relatively low inflation and relatively weak labour markets have suggested up to now a late start. However, stronger-than-expected data, rising inflation and rapidly improving labour markets may change this calculus in the months and quarters ahead.

 

[FXPRIMUS_Education]

Market Brief of the Week for 21 July 2014: Could Geo-Political Risks Spur the Demand On Heaven Assets?


Economic Insights

US dollar raised on Fed chair Janet Yellen’s less-than-dovish tone on the direction of monetary policy for the US

As Israel increases its offensive into Gaza and tensions between Russia and Ukraine increases, the sole benefactor in the currency market situation has been the US dollar.

Largely seen as one of the world’s safe haven currencies, the US dollar tends to rise when there is a heightened sense of fear and panic in the global markets. So far, the greenback has raised against all Group of 10 (G10) currency peers this month. As of Monday morning, the level of 1,009.42 on the Bloomberg Dollar Spot Index was a mere 0.2% from its 4-week high.

The rise of the US dollar is a continuation from last week’s ascent, when Fed chair Janet Yellen presented in a less-than-dovish tone on the direction of monetary policy for the US. The Fed Beige Book reported that economic activity continued to pick up steam across the world’s largest economy. The report, which covered a 6-week period ending on 7th July, is the second Beige Book in a row to find growth across the USA. Even Janet Yellen herself said that the Fed could raise benchmark rates sooner than expected if labour markets continue to improve rapidly. St. Louis Fed President James Bullard has echoed the same sentiment.

As a result, traders across the globe are increasing bets that Fed officials will raise the benchmark rate from near zero by the middle of 2015. Traders are betting that there’s about 74% chance that policy makers will raise the rate by September 2015, as the fed funds futures data compiled by Bloomberg showed. A clue is already seen in the rising Treasury yields, with the 10-year yields high of about 2.55 to 2.56%. The Federal Open Market Committee (FOMC) has kept the benchmark interest rate at a record zero to 0.25% since December 2008.

All eyes will be on the US inflation data which is due to be released tomorrow. A higher than expected figure would raise the US dollar, as traders bet on the increasing likelihood that the US economy has finally turned a corner. The cost of living increased 0.3% last month, according to the median forecast in a Bloomberg survey, after a 0.4% rise in May which was the biggest since February 2013, according to the US Labour Department data.

Since the attention is focused on the US labour recovery, do take note that the US payrolls added 288,000 jobs in June – the fifth monthly gain of at least 200,000. The jobless rate has also fallen to a six-year low. A higher than expected Consumer Price Index (CPI) figure would almost certainly send the EUR/USD lower and the USD/JPY higher.



Top News This Week

USA: Core CPI m/m. Tuesday, 22nd July, 8.30pm.
I expect figures to come in at 0.3% (previous figure was also 0.3%).

Australia: CPI q/q. Wednesday, 23rd July, 9.30am.
I expect figures to come in at 0.5% (previous figure was 0.6%).

New Zealand: Official Cash Rate. Thursday, 24th July, 5am.
I expect a hike to 3.5% (currently at 3.25%).



Trade Call

Long NZD/USD at 0.8725

On the H1 chart,

On the H1 chart, NZD/USD is edging up towards the potential resistance at 0.8720. Reserve Bank of New Zealand (RBNZ) is scheduled to announce their interest rate this week. In anticipation of a rate hike from RBNZ, I expect the NZ dollar to continue to trend higher this week.

We will go long once prices break the resistance at 0.8725, which are 5 pips above the resistance level. A 35 pip stop loss is placed below the round figure 0.8700 and we will have two targets on this trade, exiting the first position at 0.8760 and the second one at 0.8795.


Entry Price = 0.8725
Stop Loss = 0.8690
1st Profit = 0.8760
2nd Profit = 0.8795

 

[FXPRIMUS_Education]

Daily Market Report for 22 July 2014: China and Euro Zone Manufacturing Data May Extend the Downtrend of EUR versus Oceania Currencies


Economic Insights

EURAUD is likely to test 1.42 in the coming months

Markit will release the flash manufacturing Purchasing Managers’ Index (PMI) for China and Euro Zone tomorrow, and the outcome is likely to show some divergent moves between the two regions.

Chinese economy has been stabilised since early second quarter this year. The growth pickup in the second quarter was largely benefited by various easing measures, such as rural banks reserve ratio cut, liquidity injection and railway infrastructure building. The officials have made the statement clearly that the growth target for 2014 will remain at around 7.5%. This supports the view that the targeted currency stimulus will continue on and further more aggressive measures shouldn’t be ruled out in achieving the 7.5% growth rate in the next six months. Below is the chart for the quarterly growth numbers in 2013, and we noticed that the base of the second half last year was higher.

China GDP YoY

Hence, the economy may not be able to achieve a 7.5% Y/Y growth in the next six months without various policy supports. Government is unlikely to ignore the recent falling of housing prices, but introducing more easing measures by offering a “bottom” to the property prices, otherwise it will bring a huge risk for the short-term in the Chinese economy. The surge of lending data in June could support this view. Monthly banks’ lending rose to 1080 billion Yuan and the aggregate lending nearly hit the level of 2000 billion Yuan. The country could also start issuing Mortgage Backed Securities to revive the property market, after majority of the cities’ housing prices dropped.

China New Yuan Loan/ China Total Financing

In other words, “pro-growth” measures continue and it is likely to lead the manufacturing activities much higher this month. New Orders, Output continues to rise in June, suggesting that the uptrend since April hasn’t ended yet. The flash reading could reach around level 51.

However, manufacturing PMIs in the Euro zone could continue to stay in the downtrend which formed since beginning of the year although it could be staying in the expansion territory in the rest of the year. Euro Zone manufacturing PMI dropped to 51.8 in June from 52.2 in May. Recent falling of the single currency is not sufficient to boost the fading corporate confidence, while the regional geopolitical risk escalated after the Malaysian Airline jet was shot down. Germany is Russia’s second largest trading partner by end of 2013, further sanction on Russia is not a positive news on the economic point of view for EU. Besides that, German IFO Survey may fall as well in a few days; if so, it implies the Germany is unlikely to lead the entire Euro zone 2Q Gross Domestic Product (GDP) higher such as in 1Q.

We like to overweigh on AUD and NZD this week on a possible sound China PMI, and high possibility on the Reserve Bank of New Zealand (RBNZ) to hike the Official Cash Rate (OCR) to 3.5%. On the other side, we would underweight the EURO for the short term when the economic releases are likely to suggest more easing from the European Central Bank (ECB) is needed.

 

[FXPRIMUS_Education]

Daily Market Report for 23 July 2014: Inflation Data to Dominate the Central Bankers’ Decision in Second Half of the Year?

Economic Insights

Australia core inflation rose while the U.S Consumer Price Index (CPI) slowed down.

Australia’s core inflation gained more than the earlier forecast last quarter, sending the Aussie to its highest as it brings some resistance if the Reserve Bank of Australia (RBA) decides to further the monetary policy easing. The trimmed mean gauge rose 0.8% from the previous quarter. The weighted-median gauge of inflation advanced 0.6% in the second quarter, compared with the estimation of a 0.7% gain. Inflation of Non-tradable goods that is not imported such as fast food and utilities, climbed up 3.1% from a year earlier, as the report showed. Tradable goods, such as imported electrical goods and clothing, rose up 2.9%.

Further cut from the record low 2.5% benchmark cash rate looks rather impossible this year, since we have yet to see any sign of the crisis to arrive. Accelerating inflation poses a dilemma for central bank Governor Glenn Stevens, who this month had resumed signalling that he’d prefer a weaker currency but is facing a slowdown in growth as mining investment declines and the government cuts spending.

Option market is now pricing at 5 basis points of cuts over the next 12 months, according to an index of swaps from Credit Suisse Group AG. That’s down from 11 points from the previous data.

On the other hand, we do not expect any rate hike hint from the RBA by end of the year, unlike its neighbour – New Zealand. The RBA will be more likely to stick to its current rates, putting it on hold and waiting for further signs of the recovery, as the inflation which is to stay within the higher range of the RBA’s target range for a sustainable period remains uncertain since the demand continues to be soft, especially the commodity demand from China. Instead, the RBA is trying to rebalance the economy away from mining regions in the north and west as investment declines, and stimulate the growth in manufacturing, residential construction and retail in the south and east. Governor Stevens offered two jawboning on Australia’s currency this month as he said that most measurements would say it is overvalued, and not just by a few cents.

Overnight in the U.S., its inflation (CPI version, not Federal Reserve (Fed) gauged Preferred Equity Certificate (PEC)) rose at a slower pace in June. The CPI increased 0.3% after a 0.4% gain the prior month. Consumer prices rose 2.1% in the 12 months ending in June, the same as in May. The core measure increased 0.1% after rising 0.3% in May. It was the smallest gain since February and fell short out of the 0.2% median forecast of economists surveyed by Bloomberg. Core prices rose 1.9% from June 2013, after advancing 2% in the prior 12 months.

The data totally supports Fed Chair Janet Yellen’s view that a recent pickup in inflation carries the low risk and that the economy would rebound from a first-quarter slump sharply. That means the central bank is in no hurry to tighten the monetary policy in the near future, at least within the next 5 months.

There is some positive news from the housing market. Home sales climbed up to an eight- month high, showing the economy is generating little price pressure as growth accelerates. Housing is showing signs of rebounding, which will give the economy a lift in the second half of 2014.

Overall data benefits the Equities indices, and they have climbed after the data. The Standard & Poor’s 500 (S&P 500) Index rose 0.5% to 1,983.53, even after the Malaysian airline was shot down in the conflict zone, it didn’t escalate much. The yield on the benchmark 10-year Treasury note was 2.46%, risk on momentum and ongoing geopolitical risk continue spurring the demand on Treasury Bills (T bills).