Equity markets were little changed on Friday night, with no key data released
The market was weighed down by the disappointing earnings from Microsoft and Google that were released after the bell on Thursday. The Dow fell 0.03%, S&P 500 up 0.16%, while the FTSE and DAX were down 0.1%.
But the news in China that the central bank would abolish the floor on lending interest rates saw the AUD surge higher from 0.9180 to 0.9235 USD during the European session, although those gains were lost during the US session and the AUD fell to 0.9170 at the close. It is at 0.9182 this morning.
China’s PBoC announced that it would scrap the lower limit on lending rates that banks could charge. This was previously set at a maximum of 30% below the PBoC official 1-year lending rate (currently 6%, so a lower limit of 4.2%). In practise, less than 11% of lending occurs at anything less than the 6% official rate and virtually none at the 30% discount, so while the floor has been abolished, it should not have a significant impact on the volume or price of credit extended by the major banks. Perhaps more significant was that there was no change to the deposit rate ceiling.
Meanwhile the Japanese elections on the weekend have seen the ruling Liberal Democratic party win comfortably, strengthening the position of PM Abe, who now controls both chambers of Parliament. With the result mostly expected, the JPY is little changed at 100.4 this morning.
Not much news from the G20, with the key message that the retreat from current monetary policy settings by the US would be very carefully calibrated and communicated to minimise risk of shocks. The G20 also ramped up the importance of policy directed at stronger growth and employment.
The NZD/USD also rose on Friday after the Chinese news, hitting a high of 0.7991, but trended lower towards 0.7920 at the close, and is down at 0.7904 currently, after the news of a strong 6.5-magnitude earthquake in Wellington yesterday.
Coming Up
In Australia, the week ahead is highlighted by the Q2 CPI on Wednesday. A crucial release ahead of the August RBA Board Meeting, NAB expects to see the underlying CPI rise by 0.6% (for 2.4%yoy), which would be low enough for the RBA to cut again in August. The market is currently pricing a 62% chance of a cut next month. The headline CPI is expected to rise 0.5%, keeping the annual pace at 2.5%yoy.
Also in Australia this week, the NAB’s Q2 Manufacturing Activity Index is released today, while June skilled vacancies and the NAB’s Q2 SME Business Survey are released on Wednesday.
Offshore, the RBNZ is expected to keep policy unchanged on Thursday, while the German IFO (also on Thursday) is expected to post a small improvement in July. The advance European manufacturing and services PMIs on Wednesday are also expected to edge higher in July.
In the US, existing home sales for June are released tonight (market looking for a 1.7% gain), with new home sales on Wednesday. Durable goods orders are out on Thursday. Chinese flash manufacturing PMI for July on Wednesday and UK Q2 advance GDP on Thursday will also be a key focus for markets.
NAB