After the flurry of PMI data yesterday, Asia switched to central bank mode with the RBA announcement the key item on the agenda.
The RBA left rates unchanged at 3.5 percent, as expected, though the economy is running close to trend. It noted that previous rate cuts are still working their way through to the economy and consumption has been “quite firm” in the first half of the year. Externally, it noted that some recent Chinese indicators have been weaker while activity in Europe is contracting while the US is seeing only moderate growth. Inflation is expected to be consistent within target over the next 1-2 years. Perhaps slightly more upbeat than had been anticipated (or less-negative on China than others) AUDUSD rallied 15 ticks in a kneejerk reaction to just above 1.0250.
In other Ozzie data, the Q2 current account balance came in slightly better than expected with the deficit narrowing to A$11.8 bln from an improved A$12.99 bln in Q1 though most of the improvement came from increased shipments in metal ores and other minerals. The net income deficit narrowed to A$10.2 bln from A$10.7 bln with the total goods and services deficit narrowing to A$1.38 bln. Net exports were calculated to add 0.3 percent to Q2 GDP, partly countering Q1’s 0.5 percent negative contribution and equaling the contribution made in Q4 2011.
For the UK, like-for-like sales as recorded by the British Retail Consortium were down 0.4% from a year earlier with the Olympics providing a distraction from, rather than adding to sales, according to the BRC’s Director General. Hot weather helped the sales of party food and drink but was offset by non-food goods. GBP unchanged on the data.
There was muted activity in currency markets overnight with holidays in the US and Canada having their impact. Euro-zone PMIs were generally softer though the UK’s was a better than forecast 49.5, highest since April, but still below the key 50 threshold. This helped GBP to maintain its firmer tone, EUR held steady but AUD and NZD continued to weaken following the blast of weaker Asian PMIs.
Draghi reportedly told lawmakers at the European Parliament that any purchase of sovereign bonds of up to 3 years maturity by the ECB would not be classed as state aid and hence not a breach of EU treaties.
Data Highlights
GE Aug. Final PMI Manufacturing out at 44.7 vs. 45.1 expected and 45.1 prior
EU Aug. Final PMI Manufacturing out at 45.1 vs. 45.3 expected and 45.3 prior
UK PMI Manufacturing out at 49.5 vs. 46.1 expected and revised 45.2 prior
UK Aug. BRC Like-For-Like Sales out at -0.4% y/y vs. -0.5% expected and +0.1% prior
JP Aug. Monetary Base out at +6.5% y/y vs. 8.6% prior
NZ Aug. ANZ Commodity Prices out at +0.5% m/m vs. revised -0.4% prior
AU Q2 Current Account Balance out at –A$11.8 bln vs. –A$12.2 bln expected and revised –A$12.99 bln prior
AU RBA leaves Cash Target Rate unchanged at 3.5%
Upcoming Economic Calendar Highlights
(All Times GMT)
Norway Consumer Confidence (0430)
Swiss Q2 GDP (0545)
UK PMI Construction (0830)
EU Euro-zone PPI (0900)
US Markit PMI – Final (1258)
SI PMI (1330)
US ISM Manufacturing (1400)
US ISM Prices Paid (1400)
US Construction Spending (1400)
Andrew Robinson,
SAXO BANK