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Daily Market Digest: BoJ, UK retail sales, US inflation

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The dollar fell to 18-month lows earlier today after the Bank of Japan left monetary policy unchanged. New Zealand’s quarterly GDP numbers beat forecasts, rising 0.70%. Australia’s unemployment rate remained unchanged at 5.70%. In the UK, retail sales continued to surge. In the US, monthly consumer inflation tame!

Today’s Economic events

  • New Zealand GDP q/q 0.70% vs. 0.50%; GDP y/y 2.80% vs. 2.60%
  • Australia consumer inflation expectations 3.50% vs. 3.20% previously
  • Australia employment change 17.9k vs. 15.0k
  • Australia unemployment rate 5.70% vs. 5.70%
  • BoJ leaves monetary policy unchanged
  • BoJ rate -0.10% vs. -0.10%
  • SNB rate -0.75% vs. -0.75%
  • UK retail sales m/m 0.90% vs. 0.20%; y/y 6.0% vs. 3.90%
  • UK core retail sales m/m 1.05% vs. 0.30%; y/y 5.70% vs. 3.80%
  • Eurozone CPI m/m 0.40% vs. 0.40%; y/y -0.10% vs. -0.10%
  • BoE rate 0.50% vs. 0.50%
  • US CPI m/m 0.20% vs. 0.30%; y/y 1.0% vs. 1.10%
  • US core CPI m/m 0.20% vs. 0.20%; y/y 2.20% vs. 2.20%
  • US initial jobless claims 277k vs. 270k
  • US Philly Fed manufacturing index 4.7 vs. 1.3

Coming up

  • US NAHB housing market index
  • BoE Governor Carney speech

New Zealand Q1 GDP rises more than forecasts

New Zealand’s economy expanded at a pace of 0.70% in the first three months of the year, beating the RBNZ and economists’ forecasts, data from Statistics New Zealand showed today.

However, the first quarter growth was seen to be slightly lower than the fourth quarter GDP growth of 0.90%. The Kiwi jumped on the better than expected GDP data following the US dollar which remained weak after the Fed’s statement came out dovish. The NZDUSD jumped to $0.709 on the report. The first quarter economic growth was driven by increased activity in the construction sector and health industries, but primary industries and manufacturing posed a drag. The services sector grew at a pace of 0.80% on the quarter.

The better than expected GDP growth has prompted analysts to scale back their rate cut expectations from the RBNZ but cautioned that upcoming inflation and unemployment data could carry more weight. ANZ analysts  added: “The odds still favor an August cut on currency strength and global wobbles alone, but it isn’t a view with conviction.” Westpac economists also said that the unexpectedly strong Q1 GDP growth doesn’t alter the big picture.

“The split between goods and services is something we expect will continue into 2016. We anticipate a slight slowdown in the pace of growth in early 2016,” Westpac said.

Dollar slips to 18-month low on BoJ inaction

The yen surged early this morning across the board as the Bank of Japan decided by an 8-1 vote to leave monetary policy unchanged, prompting speculators to push the USDJPY to break below the 105 barrier. The dollar fell to 104.50 yen in early Asian trading and extended its declines to 104.150, the lowest levels since September 2014. The BoJ’s monetary policy inaction was widely expected as the BoJ members voted to keep its annual asset purchase target, unchanged at 80 trillion yen while maintaining its deposit rate steady at -0.10%. Central bank officials indicated that they would hold off from making any policy changes ahead of next week’s EU referendum vote in the UK. A Brexit or a vote to leave the EU is expected to rock the global markets and could mute any policy decisions by the BoJ.

Mizuho Securities chief foreign-exchange strategist Kengo Suzuki said, “Short-term players have taken speculative yen-buying positions. With the dollar breaching its downside support at the Y105-mark, it now has potential to slip toward Y100-Y101, a level that is tough for Japan’s economy.”

The yen strengthened overnight after the Fed’s dovish statement where it left interest rates unchanged at 0.50% and signaled that the central bank would maintain an accommodative monetary policy. Although the Fed projected two rate hikes this year, analysts are expecting to see just one rate hike from the Federal Reserve.

UK Retail sales extend gains for the second consecutive month

Retail sales in the UK extended gains for the second month, rising at the fastest pace in 8-months, data from the UK’s Office for National Statistics showed earlier today. Retail sales by volume jumped 6.0% on a yearly basis, compared to a year ago, posting the strongest pace of growth since September 2015. Consumers spent more at retail stores although spending on clothing and footwear moderated. On a month on month basis, retail sales rose 0.90% from April. Excluding auto fuels, UK retail sales rose 1.0%, above forecasts of 0.30%. Previous month’s numbers were also revised higher, bringing the year over year retail sales to 6.0% on the headline and 5.70% on the core which excludes auto fuel.

The retail sales numbers follow a set of broadly positive economic data. Yesterday, UK’s unemployment rate fell to 5.0%, marking an 11-year low. Last week, manufacturing and industrial production numbers both picked up as well. The latest set of figures is poised to show that the UK’s economy got off to a strong start in the second quarter of the year, even as businesses and consumers shrugged off risks from the referendum vote due next Thursday.

The Sterling was seen trading steady, but analysts warn of increased risks. “Despite fundamental pressures on sterling due to slower activity and the current account deficit, the direct exposure to sentiment shifts makes it hard do anything in GBP between now and Thursday,” UBS strategist Lefteris Farmakis said.

US CPI moderates in May

Underlying price pressures in the US remained steady pointing to a gradual acceleration compared to a year ago. Latest consumer inflation figures released by the US labor department showed inflation easing back after rising strongly in April. The headline CPI was up 0.20% in May, falling below forecasts of 0.30% while rising at a pace of 1.0% on a year over year basis in May, but missing analyst expectations of a 1.10% print. Gasoline prices were up 2.30% in May while electricity prices gained a moderate 0.20%.

Excluding the food and energy, the core CPI was up 0.20% in May, rising at the same pace as in April and matching forecasts. On a year over year basis, core inflation is up 2.20%. Shelter prices gained 0.40% on the month marking a biggest monthly jump seen since February 2007 with the lack of housing inventory seen driving prices higher. Services were up 0.20% while transportation prices gained 0.30%.

In a separate report, the weekly jobless claims data showed 277k first-time unemployment claims, which was more than forecasts of 270k.

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