No dramatic market moves overnight
US stocks and bond prices are modestly firmer following a mixed set of US economic releases and which vied with better than expected Q2 revenue and earnings reported by Citigroup. The main US indices close with gains of 0.13% and 0.14% for the DJIA and S&P500 respectively. 5 and 10-year Treasury yields are both 4bps lower at 1.38% and 2.54% respectively while the VIX is very marginally lower at 13.79% and the DXY version of the dollar index up just +0.06% to 83.05 (dollar stability in the face of lower Treasury yields is of some note here). AUD and NZD are the best performing G10 currencies, +0.6% and +0.4% respectively, still in part reflecting the fact yesterday’s China data was not worse than expected.
The US data shows retail sales for June disappointing expectations in both headline and underlying terms. The headline rise of 0.4% was only half what was expected, while the core ‘ex autos’, ‘ex autos and gas’ and ‘ex autos, gas and building materials’ (the so called ‘control’ group) all ranged between -0.1% and +0.1% against consensus forecast for 0.3% in all cases. We also had a 1/10% downward revision to May headline sales. Some offset came from a stronger than expected Empire (NY State) manufacturing survey, 9.46 up from 7.84 and 5.0 expected, though this has historically been a poor guide to the manufacturing ISM survey.
Note that the countdown to Mr Bernanke’s first Congressional testimony in Washington has been accelerated, with the prepared testimony now to be released at 08:30 Eastern time (10:30pm AEST) on Wednesday.
Coming Up
Minutes of the July RBA meeting are the main domestic event for Australian markets today. The June post-meeting statement affirmed that the central bank retains an easing bias, and also expressed the expectations/hope that the exchange rate had further to fall in the context of the falling terms of trade. Mr Stevens’ reported comment about the Board deliberating ‘for a very long time’ before deciding to keep rates unchanged this month was confirmed to have been ‘light hearted’ by deputy governor Phil Lowe the following day. Markets will nevertheless parse the minutes closely for clues as to just how close the Board came to deciding on a rate change. Chances are we won’t learn a lot more than we know already, but some form of market reaction is nevertheless to be expected with markets now attaching odds of near 70% to an August 25-point cut.
Of interest across the Tasman, NZ Q2 CPI is due at 08:45 AEST and where our BNZ colleagues are in line with the market consensus is expecting a 0.3% Q/Q outcome for +0.8% Y/Y (latter down from 0.9%). A relatively soft outcome, combined with the possibility that the LVR restrictions (on mortgage lending) seem likely to be implemented this week and look more aggressive than most have been anticipating, could see the market take some RBNZ tightening out of the curve. This would be on the view the LVR controls can do some of the heavy lifting work for them. Together, these influences pose some short term downside risk to the NZD and may at least retard the downward progress we continue to expect on the AUD/NZD cross. Some temporary upward pressure could also come if the aforementioned RBA minutes fail to put markets even more strongly on the scent of an August rate cut.
Offshore tonight we’ll get latest UK inflation readings, the German ZEW survey, US CPI, Industrial Production, TICS (capital flows) data and the NAHB Housing Market Index.
NAB