Monday was a fairly quiet day of trading with the economic calendar being light. The markets were trading flat for the most part. Focus was on the Japan trade balance data, which increased to 0.33 trillion yen, beating estimates of 0.24 trillion yen. The finance ministers and central bankers of the G20 economies met in China over the weekend with Brexit and monetary policy staying as the main focus for the leaders. In Germany, business confidence data for July slipped to 108.3 compared to 108.7 with businesses noting that they were less optimistic after the Brexit referendum.
By Tuesday, the markets were already preparing for the FOMC meeting due later in the week. The US dollar was seen slipping against its peers. The market moving news on the day was the Japanese yen which strengthened for a second consecutive day. The yen jumped sharply as reports from Nikkei daily suggested that Japan was considering a 6 trillion yen in the fiscal stimulus package. This was lower than the 10 trillion that the markets were expecting to see.
Tomoichiro Kubota, the senior market analyst at Matsui Securities, said, “Fiscal stimulus looks less bold, and we aren’t sure if [Bank of Japan Governor Haruhiko] Kuroda will ease further. It’s difficult to buy more from here.”
In Europe, the sterling came under pressure after previously known hawk; BoE’s Martin Weale said that he favors the central bank to increase its stimulus spending effective immediately. His views shifted after the quarterly CBI Industrial trends data showed that more than 50% of UK firms were less optimistic about the general business situation. “I see things rather differently from what I would have done had we not had those numbers, and the material point is that they were collected after July 12, so after the initial shock of the referendum,” Martin Weale said. His comments were dovish just a week after he said that there was no urgency to ease monetary policy.
The Japanese yen continued to remain volatile by Wednesday morning as the yen fell sharply across the board. This came as fresh news reports suggested that the fiscal stimulus spending could amount to as much as 28 trillion yen. There were also reports that Japan was considering to issue 50-year bonds for the first time.
“I don’t think the issuance of JGBs with longer duration alone can be interpreted as helicopter money. But it’s highly possible that such an impression will gradually strengthen,” Masahiro Ichikawa from Sumitomo Mitsui Asset Management said.
The Asian session saw the quarterly CPI data from Australia. Reports showed that consumer prices grew at a pace of 0.40% in the second quarter, while the RBA’s measure of inflation increased 0.50%, beating estimates of 0.40%. The soft print stoked expectations that the RBA could cut rates at its meeting next week. “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.
In the UK, preliminary GDP data showed that economic growth increased 0.60% in the second quarter, accelerating from 0.40% growth seen in the previous quarter. Industrial sector outpaced other sectors, rising 2.10%, while services took a back seat, rising 0.50% during the quarter. The Sterling was little changed on the news as expectations of BoE easing next week kept the sterling gains limited. 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.”
In the US, durable goods fell sharply in June, posting one of the biggest declines in two years. The headline durable goods orders fell 4.0% in June while excluding transport, the core durable goods orders were down 0.50%. The dollar was, however, unmoved as the markets looked to the FOMC meeting later in the day.
The Federal Reserve kept the status quo unchanged as widely expected and its statement saw very few changes from the June policy meeting. The Fed said that “near-term risks to the outlook have diminished” with the markets turning mixed initially for the September rate hike. The US dollar which strengthened initially soon gave back its gains as investors were unconvinced that the Fed would hike rates in September.
By Thursday, economic data from Australia included the import/export prices. On a quarter over quarter basis, Australian exports outpaced import prices. Export prices rose 1.40% in the second quarter of the year, which was below forecast of a 3.0% increase, but better than the contraction of 4.70% in the first quarter. Imports fell 1.0% during the same period and extended the declines into the second quarter.
In the Eurozone, economic sentiment index from the European Commission shows that European businesses were more optimistic than their British counterparts. The ESI rose to 104.6 in July compared to 104.4 in June.
By Friday morning, the markets were well tuned into the Bank of Japan monetary policy meeting. Ahead of the meeting, economic data from Japan saw the unemployment rate falling to 3.10% from 3.20% previously. Retail sales remained weak, falling 1.40% on a year over year basis while inflation continued to weaken. The National Core CPI fell 0.50% on a year over year basis, more than the expected 0.40% decline seen a month ago. The Bank of Japan’s measure of core inflation grew at a pace of 0.80% in June rising at the same pace as a month ago.
The Bank of Japan eased monetary policy at its meeting on Friday. The central bank expanded its ETF purchases to ¥6 trillion up from ¥3.3 trillion previously. However, the central bank kept its bond purchases unchanged at ¥80 trillion while leaving interest rates at -0.10%. The yen surged on the announcement as the policy easing fell short of market expectations.
In the Eurozone, preliminary GDP estimates showed that the economic activity in the eurozone grew at a pace of 0.30%, rising at the same pace as the previous quarter. Preliminary inflation data showed that headline inflation jumped 0.20% on a year over year basis while core inflation was the same, rising 0.90%.
In the US, the first estimates of the second quarter GDP showed the US economy rising 1.10%, less than the 2.60% that was forecast. The US dollar extended its declines following the weak GDP number.
Summary of Economic events this week
- Japan trade balance 0.33 trillion vs. 0.24 trillion
- German Ifo business climate 108.3 vs. 107.7
- UK CBI industrial order expectations -4 vs. -6
- New Zealand trade balance 127mn vs. 128mn
- Japan SPPI y/y 0.20% vs. 0.10%
- UK BBA Mortgage Approvals 40.1k vs. 40.2k
- S&P/CS HPI 5.20% vs. 5.60%
- US flash services PMI 50.9 vs. 51.2
- CB consumer confidence 97.3 vs. 95.6
- US new home sales 592k vs. 560k
- Richmond manufacturing index 10 vs. -4
- 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%
- US Pending home sales 0.20% vs. 1.90%
- Crude oil inventories 1.7mn vs. -2.1mn
- FOMC statement
- Fed funds rate unchanged
- Australia import prices q/q -1.0% vs. 1.60%; export prices q/q 1.40% vs. 2.90%
- UK Nationwide HPI m/m 0.50% vs. 0.20%; y/y 5.20% vs. 4.80%
- Sweden unemployment rate 7.60% vs. 7.90%
- Sweden retail sales m/m -0.60% vs. -0.10%; y/y 3.20% vs. 4.20%
- Germany unemployment rate 6.10% vs. 6.10%
- Eurozone economic confidence 104.6 vs. 103.5
- Germany CPI m/m 0.30% vs. 0.30%; y/y 0.40% vs. 0.40%
- US weekly jobless claims 266k vs. 262k
- New Zealand building consents 16.3% vs. 0.10% previously
- Japan household spending y/y -2.20% vs. -0.40%
- Japan Tokyo core CPI y/y -0.40% vs. -0.40%
- Japan unemployment rate 3.10% vs. 3.20%
- Japan retail sales y/y -1.40% vs. -1.20%
- Japan preliminary industrial production m/m 1.90% vs. 0.60%
- ANZ business confidence 16 vs. 20.2 previously
- Australia PPI q/q 0.10% vs. 0.20%
- Australia private sector credit m/m 0.20% vs. 0.50%
- BoJ Core CPI y/y 0.80% vs. 0.80%
- Japan housing starts y/y -2.50% vs. -2.80%
- French preliminary GDP q/q 0.0% vs. 0.20%
- Germany retail sales m/m -0.10% vs. 0.0%
- French consumer spending m/m -0.80% vs. 0.10%
- French preliminary CPI m/m -0.40% vs. -0.30%
- Switzerland KOF Economic Barometer 102.7 vs. 101.6
- Spain flash CPI y/y -0.60% vs. -0.50%
- Spain flash GDP q/q 0.70% vs. 0.70%
- UK net lending to individuals 5.2bn vs. 4.2bn
- Eurozone flash CPI estimate y/y 0.20% vs. 0.10%; Core CPI estimate y/y 0.90% vs. 0.90%
- Eurozone preliminary GDP q/q 0.30% vs. 0.30%
- Canada GDP m/m -0.60% vs. -0.50%
- US Advance GDP estimates q/q 1.20% vs. 2.60%
- US Advance GDP price index q/q 2.20% vs. 1.90%
- US employment cost index q/q 0.60% vs. 0.60%