Market Review for August 10, 2018

Economic data released through the Asian session this morning included July business PMI and electronic card retail sales figures out of New Zealand and prelim 2nd quarter GDP figures out of Japan. Later in the day, Japan’s tertiary industry activity index and China new loan figures are also scheduled for release, which could catch the market’s eye should there be a material fall in new loans.

Outside of the stats, the RBA monetary policy meeting minutes from Tuesday’s RBA interest rate decision were also released.

For the Kiwi Dollar,

July’s business PMI eased from 52.8 to 51.2, marking the 3rd consecutive slowdown in growth across the manufacturing sector. Looking at the main sub-indexes:

  • Production contracted, with the index falling from 51.4 to 49, its lowest level of contraction since May 2015.
  • The pace of hiring improved, with the Employment index rising from 49.2 to 51.2, while the rate of increase of finished stocks gathered pace, the sub-index rising from 50.3 to 53.6 in spite of a pickup in hiring.
  • New orders saw significantly slower growth, with the sub-index falling from 56.5 to 52.6.
  • With some doom and gloom across the sector, the number of negative comments overtook the number of positive comments at 51.3% to 48.8%.

The Kiwi Dollar moved from $0.66173 to $0.6607 upon release of the figures.

Electronic card retail sales rose by 0.7% in July, coming in ahead of a forecasted 0.5%, to mark a 3rdconsecutive monthly rise, while easing off from June’s 0.8% rise.

The increase was attributed to a 2.1% rise in spending on fuel, a 0.6% rise in spending on consumables and a 0.5% rise in spending on hospitality.

The Kiwi Dollar moved from $0.6607 to $0.66062 upon release of the figures.

At the time of writing, the Kiwi Dollar was down 0.08% to $0.6608, the RBNZ statement still ringing in the Kiwi’s ears.

For the Japanese Yen, prelim 2nd quarter GDP numbers came in better than expected, with the economy growing by 1.9% year-on-year, coming in ahead of a forecasted 1.4%, while rebounding from the 1st quarter contraction.

Quarter-on-quarter, the economy grew by 0.5%, coming in ahead of a forecasted 0.3%, following the 0.2% contraction in the 1st.

According to the figures released, growth was driven by private consumption, which was up 0.7% and well above a forecasted 0.2% rise, with capital expenditure rising by 1.3%, while external demand fell by 0.1%.

While the good news was the recovery, concerns over trade linger, with Japan on Trump’s trade war hit list.

The Japanese Yen moved from ¥111.123 to ¥111.053 against the Dollar, upon release of the figures, before rising to ¥110.95 at the time of writing, a gain of 0.12% for the session.

For the Aussie Dollar, there were no surprises in the monetary policy meeting minutes, the Aussie Dollar moving from $0.73703 to $0.73693 upon release of the minutes. At the time of writing, the Aussie Dollar was down 0.08% at $0.7367.

 In the equity markets, the U.S markets failed to inspire in the early part of the day, with the Nikkei down 0.46%, weighed by the stronger Yen and continued concerns over the possible effects of a trade war that also pressured the Hang Seng, down 0.27% at the time of writing. Bucking the trend early was the CSI300 that was up 0.21%, support coming on sentiment towards the government’s plans to support the economy with fiscal policy measures.

The ASX200 was down just 0.05%, recovering from heavier losses from earlier in the day.

The Day Ahead:

For the EUR, economic data out of the Eurozone is limited to 2nd quarter nonfarm payroll figures out of France that is unlikely to have a material influence on the EUR through the morning, leaving market risk appetite and the possible effects of a trade war on the Eurozone economy to provide direction through the day, ahead of U.S inflation figures later today.

At the time of writing, the EUR was up 0.03% to $1.1531, with $1.16 levels in play should U.S inflation numbers disappoint.

For the Pound, it’s a particularly busy day on the data front, with key stats including 1st estimate GDP numbers for the 2nd quarter and for the month of June, together with June trade data and industrial and manufacturing production figures. Later in the day, the NIESR GDP Estimate will also be released that could provide further direction for the Pound, though unlikely to be able to offset any negative numbers.

With the Pound having been under intense pressure, following last week’s Carney press conference and with Brexit jitters adding further pressure, the only hope is for today’s stats to impress, weaker than forecasted numbers likely to bring $1.26 levels into play near-term. Based on forecasts, there should be some support for the Pound off the stats.

At the time of writing, the Pound was up 0.05% to $1.283, with the GDP and manufacturing production figures the drivers for the day.

Across the Pond, U.S inflation figures are in focus. Following some particularly hawkish chatter from FOMC member Evans on Thursday, suggesting the possibility of two further hikes this year, the numbers will need to be good for the Dollar to hold on to yesterday’s gains.

As always, it’s the end of the week and the Oval Office could throw a curve ball for the markets late in the day.

At the time of writing, the Dollar Spot Index was up 0.06% to 95.558, noise from the Oval Office and inflation figures in focus through the day.

For the Loonie, it’s also a big day, with July employment figures scheduled for release this afternoon. Positive numbers likely to return the Loonie to $1.29 levels, though NAFTA chatter could get in the way should Mexico and the U.S thrash out the auto deal.

At the time of writing, the Loonie was up 0.03% to C$1.3047.


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