Market themes & issues
China data cheer up the region, AUD. A strong performance by regional equities, supported at least in part by the slew of Chinese data, sparked a recovery in risk-sensitive AUD and NZD and hurt safe haven USD. AUD/USD had dipped to its 1.0568 low in the Sydney morning and sat at 1.0595 pre-data. The as-expected May Chinese CPI and above-consensus IP headline was taken positively, AUD/USD squeezing up to 1.0630 in short order, and later extending to 1.0648. There was no leak (at least until 2 minutes prior, on state-owned Xinhua), perhaps due to the reported investigation into previous leaks. EUR/USD followed a similar pattern, trading at 1.4420 early, dipping to 1.4379 then rallying to 1.4445 as European markets opened. Likewise on NZD/USD, dipping to 0.8139 then bouncing to its 0.8195 high in the wake of the Chinese data. The Shanghai Composite sat +1.1% in afternoon trade, the Kospi +1.4%. USD/JPY paid little attention to the Bank of Japan’s steady hand on policy, wandering around a tight 80.09 – 80.37 range. USD/CHF popped up a bit as the Swiss government lowered its 2012 growth forecast to 1.5% from 1.9%, partly blaming the strong franc.
USD/Asia lower on resilient China data. The trend move for USD/Asia today has been down, albeit in a fairly modest fashion. A number of factors have helped support Asian currency sentiment. Overnight, US equities edged up slightly and while the move was very modest, at the very least it helped stabilise sentiment and equities have now risen in 2 out of the last 3 sessions. After this we had a lower than expected USD/CNY fix (off 70 points to 6.4822) and then the mix of Chinese data was better than expected. CPI printed on expectations, following rumours of a print closer to 6% prior to the data. IP and fixed asset investment were both stronger than expected, which helped offset negative sentiment following yesterday’s softer loans data. Reflecting this, equities around the region are a sea of green. The lower USD/CNY fix has put an offered tone to the USD/CNY NDF curve, with the 12-month trading back below the 6.3800 level. USD/MYR has gapped lower as well, with the 1-month trading back down towards the 3.0300 region before stabilising. This reverses much of yesterday’s bounce and there has been talk today of continued strong for Malaysian bonds, which has also been a positive for sentiment. The next two best performers have been KRW and SGD.
Economic data & events
May NAB business survey – weak business conditions. Business conditions reportedly weakened significantly and to a weak reading in May. The NAB survey reported that: business conditions fell 4pts to just +0.7pts; and the three components all weakened. Business confidence was – surprisingly – relatively resilient, moderating from +7pts to +5.5pts. Business conditions’ weakness in May is concerning. With activity in January significantly disrupted by the floods, the slump in business conditions in January and the gradual recovery in February were understandable. But by May, conditions should be returning to normal and the rebuilding effort post the floods should be providing a boost to activity.
NZ food prices rose by 0.5% in May, broadly as expected. The May outcome follows a 0.1% increase in April.
Chinese May data: the flow remains multi-speed. In the month of May, industrial production was resilient at 13.3%yr from 13.4% previously, aspects of fixed investment were strong, price pressures remained elevated (the CPI rose to 5.5% from 5.3% in April) and retail volumes softened. That cluster follows robust imports but softer money and credit data in recent days. Our estimate of the seasonally adjusted move in IP is 0.8%, and the 6-month annualised rate decelerated for the second month. It is now at 15.4%, down from 20.9% in May. The inflation situation remains threatening, if more nuanced than in recent history. The three-month annualised pace has slowed to a little above zero in May, with monthly changes of –0.2%. +0.1% and +0.1% reported in the last three readings. However, a year ago prices fell in two of the three equivalent months, so the deceleration has not yet offered any relief on the headline year-ended rate. Food inflation remains stubbornly high, shelter is yet to recede below
6%yr and no broad price category fell in year-ended terms in May.
The Bank of Japan maintained its current policy stance as expected at the June meeting. Activity in the Japanese economy is expected to pick up in the second half of the year as the supply-side restraints associated with March’s natural disaster abate and rebuilding commences. However, the BoJ did announce today that it would expand its previously announced “Fund-Provisioning Measure to Support Strengthening the Foundations for Economic Growth” through the addition of “a new line of credit for equity investments and the so-called ABL, or asset-based lending”. Under the measure the BoJ “extends loans to its counterparties based on the actual lending and investment carried out under the Plan for Strengthening the Foundations for Economic Growth submitted to the Bank by each counterparty”.
Upcoming events (mkt f/c %mth unless indicated otherwise)
Still to come today
Inr May monthly wholesale prices %yr (last 8.66%, f/c 8.70%)
UK May RICS house prices (last –21%)
UK Apr house prices %yr (last 0.9%)
UK May CPI %yr (last 4.5%, f/c 4.4%, WBC f/c 4.4%)
US May NFIB small business optimism (last 91.2, f/c 9.6%, WBC f/c 89.0)
US May PPI (last 0.8%, f/c 0.0%, WBC f/c 0.1%)
US May PPI core (last 0.3%, f/c 0.2%, WBC f/c 0.2%)
US May retail sales (last 0.5%, f/c –0.4%, WBC f/c –0.5%)
US May retail sales ex autos and gas (last 0.2%, f/c 0.3%, WBC f/c 0.3%)
US Apr business inventories (last 1.0%, f/c 0.8%, WBC f/c 1.0%)
Can Q1 capacity utilisation (last 76.4%)
Asian timezone tomorrow/next trading day
Aus Jun Westpac–MI consumer sentiment (last 103.9)
Aus Q1 dwelling commencements (last –5.4%, f/c –0.8%, WBC f/c flat)
Aus RBA Governor Stevens speaking
NZ Q1 retail sales (last -0.4%, f/c -, WBC f/c 0.9%)
Php Apr overseas remittances %yr (last 4.1%)
Westpac Banking Corporation