Once again, Asia started today’s session in a positive mood with the spillover from better US data encouraging risk appetite. It didn’t last, however, and currency pairs were slumped at the bottom of the day’s (albeit narrow) range by lunch.
Data releases were mixed across economies and unlikely to be the sole factor in forcing the shift in risk sentiment. Japan retail sales were as gloomy as had been predicted while Australia’s capital expenditure data seemed to allay fears of a sharp slowdown in the consumers’/industrials’ contribution to growth in the second quarter.
First off, let’s look at the Japan data. Retail sales continued to lose momentum in July, falling 1.5 percent from a month ago and 0.8 percent from a year ago (the first negative in 8 months). Sales by large retailers were down a more dismal 4.4 percent on-year and the third straight month of declines as incentives and subsidies for eco-friendly vehicle purchases dwindle (reportedly ended early-Aug). Global uncertainties, sluggish wage growth and a stagnant government (heightened expectations of a November general election) are keeping the Japanese consumer cautious, and likely to continue to do so in the near future.
Australia’s private capital expenditure rose 3.4 percent q/q, led by investment in the ongoing mining boom, and beating market expectations of a 2.4 percent increase. Investment in buildings and structures rose strongly while those in plant and equipment rebounded from Q1’s decline with a 1.2 percent gain. Forward capital expenditure plans remain at high levels with estimates for 2012/13 coming in at A$181.53 bln, 4.7 percent above the last estimate.
In contrast, Australian building approvals were weak. Approvals fell 17.3 percent m/m, 10.6 percent y/y. The data series is notoriously volatile with the last 2 months of declines merely correcting the huge spike seen in May. The AUD showed little reaction to either set of data, instead seeing direction determined more by the risk-off mood and the recent slide in commodity prices, with everyone here talking about iron ore. AUDUSD traded a 20 point range on the day, so far.
There was not much to preoccupy markets on the European front overnight, so US data led the way and better data resulted in a greater appetite for risk. German CPI was slightly higher than expected in August, up 2.0 percent y/y versus 1.9 percent expected and 1.7 percent previously, perhaps reducing expectations that the ECB will cut rates at the September meeting. Merkel met with Italy’s Monti and later praised their budget consolidation and reforms, adding that Italy was going in the right direction. Norges Bank kept rates unchanged at 1.5 percent, as expected but the NOK strengthened a touch afterwards.
On the US front, second quarter GDP was revised higher to 1.7 percent q/q from 1.5 percent (in line with expectations) with the upward revisions coming primarily from net trade, but stronger than originally estimated consumer spending also contributed to the increase. There was also better news from the housing sector with July pending home sales increasing more than expected, 2.4 percent m/m and 15.0 percent y/y. The Fed’s Beige Book was a mix of moderate and modest growth reports from across the districts, consistent with a slight loss of momentum notably in manufacturing, with real estate the consistent contrary indicator showing improvements in all 12 districts. Brazil lowered its benchmark interest rate to a record low 7.5 percent and announced tax incentives to counter economic weakness.
Data Highlights
US Q2 GDP Revision out at +1.7% q/q, as expected vs. +1.5% prior
CA Jul. Teranet/National Bank House Prices out at +0.7% m/m, +4.8% y/y vs. 0.5%/4.6% expected and 1.2%/5.4% prior resp.
US Jul. Pending Home Sales out at +2.4% m/m, +15.0% y/y vs. 1.0%/11.1% expected and -1.4%/+8.4% prior resp.
NZ Jul. Building Permits out at +2.0% m/m vs. 3.0% expected and revised 5.9% prior
JP Jul. Retail Trade out at -1.5% m/m, -0.8% y/y vs. -0.5%/-0.1% expected and -1.2%/+0.2% prior resp.
JP Jul. Lge. Retailers’ Sales out at -4.4% y/y vs. -3.2% expected and -2.6% prior
NZ Aug. NBNZ Activity Outlook out at 26.4 vs. 24.0 prior
NZ Aug. NBNZ Business Confidence out at 19.5 vs. 15.1 prior
AU Q2 Private Capital Expenditure out at +3.4% q/q vs. 3.0% expected and revised 7.7% prior
AU Jul. Building Approvals out at -17.3% m/m, -10.6% y/y vs. -5.0%/+6.0% expected and revised -1.0%/+13.0% prior resp.
Upcoming Economic Calendar Highlights
(All Times GMT)
Sweden C/A Balance (0730)
GE Unemployment Rate (0755)
UK Net Consumer Credit (0830)
UK Mortgage Approvals (0830)
UK M4 Money Supply (0830)
EU Euro-zone Business Climate Indicator (0900)
EU Euro-zone Confidence Surveys (0900)
CA Q2 C/A Balance (BOP) (1230)
US Personal Income/Spending (1230)
US Initial Jobless Claims (1230)
US Bloomberg Consumer Comfort Index (1345)
US Kansas City Fed Manufacturing Activity (1500)
EU ECB’s Asmussen to speak (1800)
Andrew Robinson,
SAXO BANK