Trade data was the early focus during today’s Asian session, with both New Zealand and Japan reporting numbers for June. Australia’s all-important Q2 CPI data followed shortly after.
New Zealand reported an improved trade surplus in June, rising to NZ$331 mln from a downwardly-revised NZ$232 mln in May. The surplus was larger than the NZ$2 mln expected (Bloomberg survey) with faster growth in exports on the back of higher dairy produce, up 6.2 percent from a year earlier while imports increased 3 percent with vehicles and mechanical equipment the major contributors. NZD’s positive reaction to the better data was minimal and short-lived given the greater weight of the risk-off environment.
Japan also announced a better than expected trade performance with the trade balance posting its first surplus since February. The bad news was that exports were down 2.3 percent y/y and -1.4 percent m/m after posting a 10 percent increase in May but lower energy prices helped the import side of the equation, recording a 2.2 percent pullback from a year earlier. Exports to China (Japan’s largest trading partner) fell 7.3 percent y/y while those to the wider Asian region (accounting for more than half of Japan’s total exports) were down 4.4 percent y/y. Asian weakness was partially offset by a pickup in exports to the US which rose 15.1 percent.
The major event for the session was the release of Q2 inflation data from Australia. RBA governor Steven’s recent comments suggested he was disinclined to pull the rate-cutting trigger too soon and the data was a major focus for markets. While the headline data was slightly below expectations, up 0.5 percent from the previous quarter and up 1.2 percent compared to a year ago, the RBA’s favoured trimmed mean measurement posted mixed results, a below forecast +0.5 percent q/q but an above-forecast 2.0 percent y/y. Average core readings are still lower than Q1’s reading but perhaps not quite as benign as had been hoped. AUD gapped lower immediately after the data but reversed immediately and spent the rest of the session back above the 1.02 level. Oz bill futures erased early gains and OIS markets reduced chances of a 25bp August rate cut to 32 percent from 48 percent previously and 64 percent at the start of the week.
More pressure was piled on the EUR overnight with weak flash manufacturing PMIs from Germany and the Euro-zone adding to the pressure from Moody’s downgrade of Germany’s ratings outlook. The Spanish bond auction went well but yields were at uncomfortably high levels. EURUSD breached the previous 2-year+ lows to hit 1.2042 with EURJPY following suit in a general risk-off trade.
On the data front, Canada’s core retail sales were better than expected in May, rising 0.5 percent m/m versus 0.1 percent expected and a revised contraction of 0.4 percent the previous month. From the US, the Richmond Fed manufacturing index was very weak, hitting -17 after a -1 print the previous month (-1 expected) and its weakest print since March 2009. Further signs of stability in the US housing market were evident with a 0.8 percent m/m increase in the FHFA house price index in May. However, it was not enough to lift the gloom surrounding markets and Wall Street eased off for the third straight day.
Data Highlights
CA May Retail Sales out at +0.3% m/m vs. 0.5% expected and revised -0.6% prior
CA May Core Retail Sales out at +0.5% m/m vs. 0.1% expected and revised -0.4% prior
US Jul. Markit US PMI – Preliminary out at 51.8 vs. 52.0 expected and 52.5 prior
US Jul. Richmond Fed Manufacturing Index out at -17 vs. -1 expected and revised -1 prior
US May House Price Index out at +0.8% m/m vs. 0.4% expected and revised 0.7% prior
NZ Jun. Trade Balance out at +NZ$331 mln vs. +NZ$2 mln expected and revised +NZ$232 mln prior
JP Jun. Merchandise Trade Balance out at +¥61.7 bln vs. -¥140 bln expected and revised -¥910.4 bln prior
JP Jun. Exports out at -2.3% y/y vs. -3.0% expected and +10.0% prior
JP Jun. Imports out at -2.2% y/y vs. +1.1% expected and 9.3% prior
AU may Conference Board Leading Index out at +0.4% m/m vs. revised -1.3% prior
AU Jun. DEWR Internet Skilled Vacancies out at -1.8%m/m vs. revised -1.7% prior
AU Q2 CPI out at +0.5% q/q, +1.2% y/y vs. 0.6%/1.3% expected and 0.1%/1.6% prior resp
Upcoming Economic Calendar Highlights
(All Times GMT)
GE IFO Surveys (0800)
UK Q2 GDP Revision (0830)
UK Index of Services (0830)
UK CBI Surveys (1000)
US MBA Mortgage Applications (1100)
EU ECB’s Noyer to speak (1145)
CA Teranet/National Bank House Price Index (1300)
US New Home Sales (1400)
Andrew Robinson,
SAXO BANK