- Yen falls as Abe expected to unleash 28 trillion yen in stimulus
- Australia quarterly inflation 0.40%, stokes RBA rate cuts in August
- UK GDP rises 0.60%, more than expected, but GBP unmoved
- US durable goods orders post biggest decline in two years
- Traders await FOMC statement later this evening
Today’s Economic events
- Australia CPI q/q 0.40% vs. 0.40%; Trimmed mean CPI q/q 0.50% vs. 0.40%
- Switzerland UBS Consumption indicator 1.34 vs. 1.24 previously
- German import prices m/m 0.50% vs. 0.60%
- Germany Gfk consumer climate 10.0 vs. 9.9
- Eurozone M3 Money supply y/y 5.0% vs. 5.0%
- Eurozone private loans y/y 1.70% vs. 1.70%
- UK Preliminary GDP q/q 0.60% vs. 0.50%
- US core durable goods orders m/m -0.50% vs. 0.30%; durable goods orders m/m -4.0% vs. -1.10%
- The US Pending home sales
- Crude oil inventories
- FOMC statement
- Fed funds rate
Australia consumer prices rise 1.0% in Q2
The CPI data released by the Australian Bureau of Statistics on Wednesday showed that consumer prices gained 1.0% on a year over year basis in the second quarter of 2016. The headline print was slightly below forecasts of 1.10% and was seen to be rising at a slower pace than Q1’s CPI of 1.30%. On a quarter over quarter basis, inflation rose 0.40%, as expected and gaining from 0.20% in the previous quarter.
The RBA’s trimmed mean CPI was up 0.50%, beating estimates of a 0.40% increase and up from 0.20% in Q1. On a year over year basis, the trimmed mean CPI advanced 1.70%, above the forecasts of 1.50% but was unchanged from the previous quarter.
Driving prices in Q2 was a rise in medical and hospital services which added 4.20% on an annual increase in private health insurance premiums, while automotive fuel and tobacco prices added 5.90% and 2.10% respectively. On the other side, prices fell 3.70% in sectors including holiday travel and accommodation while motor vehicles fell 1.3% and telecommunication equipment and services fell 1.50%.
The CPI data was closely watched as many expect the results to factor into the RBA’s August policy meeting. Justin Tyler from Aberdeen Management says, “We are seeing that in the results reports from the retail sector, for example. We believe the RBA will cut the cash rate in August, because a sustainable resurgence in price pressures won’t eventuate for some time.” Craig James from Commsec said that with inflation staying stubbornly below the 2 – 3% inflation target rate, the RBA would be nudged to cut rates, “so a rate cut will be on the agenda at the Reserve Bank Board meeting next Tuesday. Will a rate cut actually boost growth? It is far from certain, but the Reserve Bank has to try,” he said.
French consumer confidence falls for the second month
Consumer confidence index fell 1 point in July, extending the second month of declines, data from statistics agency Insee showed on Wednesday. The consumer confidence survey was held between June 28 and July 16. Insee said that only 2% of participants responded to the survey, which came after the July 14 terror attacks in Nice, France. The consumer confidence was seen at 96 in July, falling from 97 in June.
According to the survey, household opinion on personal finances in the past twelve months fell, but the outlook remained stable. Unemployment was seen as a big concern, however. The French consumer confidence report comes following that of Germany, which held steady. The survey was conducted after the Brexit verdict. In Germany, households expected to increase their spending.
In a separate report, producer price index data showed that prices at factory level increased 0.40% in June. Extending the gains was a surge in energy and refined oil prices, which rose 4.40% on the month while energy and water prices rose 0.90%. Food prices were seen to remain stable during the period. On a year over year basis, French PPI remains 3.10% lower in June, compared to a year ago.
UK Q2 GDP accelerates
The preliminary GDP estimates for the second quarter, released by the Office for National Statistics showed that the UK’s economic growth rate accelerated 0.60%. This was higher than Q1’s GDP growth rate of 0.40% and beat estimates of 0.50%. The data covered the three months to June 30, just a few days after the Brexit referendum vote.
The growth drivers in the GDP during the second quarter came from the services sector which added 0.50% and construction sector which grew 0.40%. However, the biggest gains came from the industrial production which grew 2.10%. Offsetting the strong gains was a decrease from the agricultural sector which fell 1.0%. On a year over year basis, the UK GDP growth rate accelerated 2.20% compared to 2.10% in Q1 2016.
The sterling was unmoved by the data as the markets focus on the health of the UK’s economy in a post-Brexit world. Tobias Davis, head of corporate treasury sales at the Western Union said, “Market participants are not absorbing the news [the GDP release] positively, given recent IMF growth downgrades and the BoE interest rate decision on Aug. 4.” Preliminary flash PMI’s released last week showed that the UK’s economy was heading into contraction. The data from Markit showed that output and new orders were the weakest since records were being kept.
Market speculation for BoE easing is starting to rise following yesterday’s comments by BoE member, Martin Weale, who shifted his view favoring stimulus after a business survey showed falling expectations. Weale was previously a hawk and only a few weeks ago said that the central bank should wait for hard evidence before easing monetary policy. The UK’s Treasury Chief Philip Hammond said that the UK’s economic fundamentals were strong, but he expressed confidence that the BoE and the government “will take whatever action is necessary” to support the economy after the country voted to leave the EU.
US durable goods orders fall in June
Demand for factory goods fell sharply in June, posting the biggest declines in nearly two years. Data from US commerce department showed on Wednesday that new orders for durable goods including aircrafts, industrial machinery, and other products fell 4.0% in June compared to a month ago. May’s durable goods orders were also revised lower to show a 2.80% decline from the previously estimated 2.30% decline. In the first six months of the year, durable goods orders were flat, compared to a year ago.
Nondefense new orders for capital goods was down 11.3% or $8.2 billion to $64.8 billion, the commerce department said in its report.
Excluding transportation, durable goods fell 0.50% from May while orders excluding defense fell 3.90% during the month. Demand for transportation fell 10.5%, led by a 58.8% decline in civilian aircraft orders. May’s core durable goods orders were revised lower to show a 0.40% decline from the previously estimated 0.30% decline.
The US dollar eased back following the disappointing print, but more data is awaited. Later in the day, US pending home sales is expected to show a 1.7% increase, in line with the broader strength in the US housing markets. Later, traders will be watching the FOMC statement due at 1800GMT. The Fed is expected to leave interest rates unchanged at today’s meeting.