Canadian Employment Data Due
Risk traded on a relatively soft tone overnight after some disappointing data from China. The trade balance came in at $25.15 bn vs $35.0 bn cons, with exports growing just 1.0% y/y vs 8.0% expected. Further, new yuan loans in July were just CNY540.1 bn vs CNY700 bn expected. AUD came under pressure with the data releases, though the RBA gave a more hawkish assessment than market expectations, revising their end-2012 GDP to 3.5% from 3.0%. Underlying inflation by end-2012 has also been lifted to 2.5% from 2.25% which UBS economics views as a hawkish move, assuming they haven’t changed their assessment of carbon impact. The policy statement also said that “it is possible that the persistently high level of the exchange rate may be more contractionary for the economy than historical relationships suggest.” Our read-through of this is that they are beginning to build in a structurally higher AUD into their estimates (indeed their working forecast was raised to 1.06 versus the dollar), so they may allow this to do some of the modest tightening work for them. That is not to say the RBA needs to start hiking rates by any sense, but UBS economics views this statement as a signal that the RBA now sees underlying inflation as having troughed. Norway’s oil fund, which oversees close to $600 bn in assets, says it has trimmed Eurozone exposure in Q2 to 14% of its fixed income portfolio, from 14.5% in Q1 and has lifted exposure to US Treasurys to 20% of fixed income (from 18.8%). The fund has also cut government bond exposure to France, UK, Spain. While these are only modest adjustments away from European equities and fixed income, the sheer size of assets under management makes it a notable shift. Domestic data showed that July consumer prices fell 0.5% m/m, a development which will likely keep UK construction sector data for Q2 showed that output fell by 3.9%, less than the preliminary estimate of 5.1%. UBS economics notes that this upward revision should cause a 0.1 point upward revision to Q2 GDP growth data, which was -0.7% preliminary. An upward revision to IP data earlier this week should similarly lift Q2 GDP by around 0.07 point. Taking both together, UBS expect a GDP revision to -0.5%
Click here to read the full report: UBS Morning Adviser America
UBS Investment Bank