Market themes & issues
Today saw one of the most incredible swings in market sentiment that we have seen in 3 plus years. Following on from significant losses in US equity markets, the AUD was battered by wave after wave of selling first up. It climaxed with a break back through parity for the first time since March. We saw a low of 0.9927 on the day. However, from that point on the mood started to change. It is very hard to put your finger on what drove the shift. Some pointed to comments from Kenneth Rogoff that the Fed “will embark on QE3 and act decisively on the economy”. Others pointed to more sinister arguments. The low in the S&P during the GFC was 666. Last night it closed down 6.66%. Spooky. Whatever it was, Asian equity markets started to stabilise late morning and gain as the afternoon wore on. Having been down as much as 5.5% late morning, the ASX briefly trade up 1.5% and closed with 1.2% gains. China is small up on the day after being down 3.5%. At one point the Kospi was down 9.7%. It is down just 3.2% as we write. The hope is that the Fed delivers QE3 tonight and that we can move on. So the AUD exploded during the afternoon. Having seen a low at .9927 during the morning, we hit a high of 1.0201. In other words, we have rallied 2.5% on the merest whiff of QE3. Lets just hope that this optimism is not misguided. NZD hit a low of 0.7966 during the morning – it trades currently at 0.8175. EUR and GBP were much more restrained. EUR saw a 1.4152 to 1.4248 range. GBP saw a 1.6269 to 1.6354 range. A crazy day all up, likely to be followed by a crazy night.
Economic data & events
Australian housing finance, remains subdued in June. Housing finance to owner-occupiers remained subdued in June, with lending flat in the month. This was in line with expectations (market median +0.8%, Westpac flat). Details revealed that new lending increased by 1.3% in the month, while finance for the construction of new dwellings fell by -0.8%. Notwithstanding the June result, new lending to owner-occupiers weakened by 6% over the first half of 2011. Notably, the level of new housing finance to owner-occupiers is only a little above the average prevailing over the second half of the 1990s. By state, finance to owner-occupiers trended lower over the first half of 2011 in all states except WA, where there was a 9% gain. Qld finance has yet to return to the levels prevailing at the end of 2010, declining 11%. Investor interest in the housing market has waned. Finance to investors declined by 4.4% in the month, to be 11% lower over the first half of the year.
Australian July NAB business survey: confidence higher, conditions lower. The survey was conducted from 25 to 29 July. The conditions index fell -3pts to -1 to be a little below average levels. The confidence index rose 2pts to +2, but still remains a little below average.
Total NZ electronic transactions rose 0.2% in July. Retail electronic transactions rose 0.4% while core retail electronic transactions rose 0.5%. The increase was led by a 1.5% gain in the hospitality sectors, which have had a very strong run in recent months (+11%yr). There was also a 0.8% rise in apparel spending, following a 4.8% jump in June, and small gains for consumables, durable goods and services. Fuel spending was down 1.4% for the month.
China’s CPI rose 0.5% in July, lifting the pace to 6.5%yr. Food prices moved higher, up to 14.8%yr from 14.4%, on the well documented movements in pork. Non-food prices came off a touch, from 3.0%yr to 2.9%, with a drag from housing (5.9%yr from 6.2%yr) out-weighing modest increases in clothing, household items, health and vice goods. We estimate that the seasonally adjusted headline inflationary pulse is now 3.5% on a 3mth annualised basis and 4.2% on a 6mth basis, versus 7.3% and 6.5% in June respectively. How will policymakers interpret the breakdown? On the dovish side, they will be happy to see housing shedding some ground, and will be relieved that the pulse is coming down. On the other hand, the breadth of increases coming through in the non-food basket outside of housing looks an awful lot like an attempt by a wide range of producers and vendors to defend their margins. On balance, we gauge that this report, and its implications, will be viewed as unwelcome. Separately, the PPI rose from 7.1%yr to 7.5%.
Upcoming events (mkt f/c %mth unless indicated otherwise)
Still to come today
Chn Jul industrial production %yr (last 15.1%, f/c 14.7%) — tentative date
Chn Jul fixed assets investment %ytd (last 25.6%, f/c 25.5%) — tentative date
Chn Jul retail sales %yr (last 17.7%, f/c 17.7%) — tentative date
Idr Aug Bank Indonesia decision (last 6.75%, f/c 6.75%, WBC f/c 6.75%)
UK Jul BRC sales monitor %yr (last –0.6%)
UK Jul RICS house price balance (last –27%)
UK Jun industrial production (last 0.9%, f/c 0.4%, WBC f/c 0.2%)
UK Jun visible trade balance ?bn (last –8.5, f/c –8.1)
US Jul NFIB small business survey (last 90.8, WBC f/c 89.9)
US Q2 unit labour costs (last 0.7%, f/c 2.3%)
US Aug IBD-TIPP economic optimism (last 41.4, WBC f/c 44.0)
US FOMC rate decision (last 0-0.25%, f/c 0-0.25%, WBC f/c 0-0.25%)
Can Jul housing starts (last 201k, f/c 193k)
Asian timezone tomorrow/next trading day
Aus Aug Westpac–MI Consumer Sentiment (last 92.8)
Chn Jul trade balance USDbn (last 22.3, f/c 27.0)
Jpn Jun tertiary industry index %mth (last 0.9%, f/c 1.0%)
Jpn Jul corporate goods prices %yr (last 2.5%, f/c 2.6%)
Sing Q2 GDP %yr second estimate (last 0.5%, f/c 0.4%)
Westpac Banking Corporation