The RBA kept rates unchanged at 3.5 percent Tuesday and the accompanying statement was as neutral as neutral could be. Policy is appropriate, no change in inflation outlook and consistent with target. AUDUSD saw one of the most stable outcomes for a number of meetings with the post-announcement range a measly 10-15 pips.
The only negative in the RBA’s statement came from a subdued international outlook with Europe remaining a potential source of shocks for some time. Slower growth out of China is expected. The Bank also maintained that the exchange rate remains high and terms of trade are still at high levels, despite coming off their peak.
In other data, China’s service industries continue to out-perform their manufacturing peers with the services PMI rising to 56.7 in June from 55.2 in May. A slight pickup in the property market along with new orders helped the index rise to its highest in 3 months. The HSBC equivalent is scheduled for release tomorrow and was a slightly lower 54.7 reading in May.
There was a hidden positive in today’s Japanese wage data for May which, while showing its first decline in 4 months on the headline (-0.8 percent y/y), also showed that overtime payments increased for the eighth straight month suggesting corporate Japan is getting busier. The headline fall was attributed to a sharp decline in “special payments” (usually bonuses) and is seen as a one-off.
On the US front yesterday, the ISM manufacturing report was the most disappointing of the global batch as it lurched into contraction territory for the first time in almost three years with measures of orders, production and export demand at similar lows with the Eurozone crisis is seen taking its toll. The index slid to 49.7 from 53.5 and was even below the most-pessimistic of Bloomberg forecasts.
The reported improvement in the housing market is helping the construction sector with the value of construction spending in May rising to its highest level in 2 years. Spending was 0.9 percent higher from a month earlier and even included an upward revision to the previous month’s increase to +0.6 percent. Wall St was mixed but generally higher, though it was more on expectations of further QE measures from the Fed following the weak ISM data rather than the better construction data that fueled the move.
Data Highlights
US Jun. ISM Manufacturing out at 49.7 vs. 52.0 expected and 53.5 prior
US Jun. ISM Prices Paid out at 37.0 vs. 45.8 expected and 47.5 prior
US May Construction Spending out at +0.9% m/m vs. 0.2% expected and revised 0.6% prior
JP Jun. Monetary Base out at +5.9% y/y vs. 2.4% prior
NZ Jun. ANZ Commodity Prices out at -2.4% m/m vs. -4.2% prior
China Jun. Non-manufacturing PMI out at 56.7 vs. 55.2 prior
AU May Building Approvals out at +27.3% m/m, +9.3% y/y vs. 5.0%/-15.2% expected and revised -7.6%/-23.0% prior resp.
AU RBA leaves rates unchanged at 3.5%, as expected
Upcoming Economic Calendar Highlights
(All Times GMT)
UK PMI Construction (0830)
UK Net Consumer Credit (0830)
UK Mortgage Approvals (0830)
UK M4 Money Supply (0830)
EU Euro-zone PPI (0900)
SI PMI (1330)
US ISM New York (1345)
US Factory Orders (1400)
Andrew Robinson,
SAXO BANK