The markets opened on a quiet note this week with the US markets closed on account of the Independence Day holiday. Trading was fairly quiet on Monday, with a focus on Australia. The weekend elections saw no clear winner emerge, quickly prompting ratings agencies to swoop down with warnings. Standard and Poors Global ratings said that the Australia’s AAA rating would be at risk unless there was a clear political outcome on the elections and the new government focused on the budgetary issues. The Australian dollar managed to fare better despite the risks.
In the UK, construction PMI surprised to the downside, falling to a 7-year low. The Markit/CIPS construction PMI fell to 46.0 in June posting a sharp contraction in the sector. The British pound was seen trading flat on Monday but was still supported above $1.320.
Tuesday got off to a busy start, especially for the Australian dollar. Economic data included the retail sales numbers which showed a month over month increase of 0.20%, less than the forecasts of 0.30% The Reserve Bank of Australia kept interest rates unchanged at its meeting on Tuesday. However, the RBA signaled that it would assess further economic data before making any changes to its monetary policy.
In the Eurozone, retail sales picked up steam, rising for the second month in a row. The markets were trading fairly positive, but the Bank of England’s Financial Stability report was the catalyst which sent the pound falling again. The BoE announced that it was cutting the capital buffer requirements to zero percent, down from 0.50%, in a bid to ease up close to 1.5 billion GBP for lending to businesses and households.
The risk off sentiment sent gold prices surging to a new 2-year high by Wednesday while the British pound broke out below the $1.32 floor that was established to close at a new 31-year low at 1.302.
While the sterling continued to fall into Wednesday, investor sentiment in the UK soured. Three hedge funds with a large exposure to the UK real estate market had to suspend trading and prevent investors from pulling out their funds. In Europe, German factory orders stayed flat in May.
The Swedish Central Bank kept interest rates on hold at -0.50% at its meeting. The bank is, however, forecasted that rates could be hiked around the third quarter of 2017.
The FOMC meeting minutes were released later on Wednesday. The minutes showed that the Fed members were divided on the course of rate hikes but broadly agreed that the Brexit referendum posed a major risk to the financial markets. The meeting minutes were from the Fed’s June policy meeting where interest rates were left unchanged.
[Tweet “ISM non-manufacturing PMI hit a 7-month high, rising to 56.5 in June, following May’s 52.90”]
In the US, the ISM non-manufacturing PMI hit a 7-month high, rising to 56.5 in June, following May’s 52.90. The survey showed a broad pick-up in the services sector including the employment index rising to 52.7, from 49.7 previously.
By Thursday, the ratings agencies followed up on their warnings and put Australia on a negative watch list, citing the previously mentioned risks. The Aussie, however, remained fairly resilient to the ratings warnings.
In Germany, industrial production data showed a 1.30% contraction in May, larger than expected. In the UK however, industrial and manufacturing production fell less than expected. Previous month’s data was also revised higher, bringing the year over year change in industrial and manufacturing production to 1.40% and 1.70% respectively.
Oil prices posted strong declines falling by over 4% after the EIA reported smaller than expected drawdown in inventory. In the US, data from ADP and Moody’s Research showed that the US economy added 172k jobs in the private sector, but jobs in the construction and manufacturing sectors continued to weaken broadly.
By Friday, the markets were already looking ahead to the US payrolls report. Data from the Bureau of Labor Statistics showed that the US economy added 287k jobs in June, beating estimates of 180k by a strong margin. The unemployment rate jumped to 4.90% while the participation rate also showed a modest improvement. The knee-jerk reaction sent the dollar higher with EURUSD losing 0.52% on the day. In Canada, the jobs report was also seen to be better, with the unemployment rate falling to 6.80% for the third consecutive month. However, the economy was seen to shed 0.7k jobs during June.
Summary of Economic events this week
- Japan Monetary Base y/y 25.40% vs. 26.30%
- Australia MI inflation gauge m/m 0.60% vs. -0.20% previously
- Australia building approvals m/m -5.20% vs. -3.60%
- ANZ Job Advertisements m/m 0.50% vs. 2.20% previously
- Eurozone Sentix investor confidence 1.7 vs. 8.1
- UK construction PMI 46.0 vs. 50.6
- Eurozone PPI m/m 0.60% vs. 0.30%
- Canada RBC Manufacturing PMI 51.8 vs. 52.1 previously
- Australia AIG services index 51.3 vs. 51.5 previously
- New Zealand Commodity prices m/m 3.70% vs. 1.10%
- Australia retail sales m/m 0.20% vs. 0.30%
- Australia trade balance -2.22bn vs. -1.72bn
- China Caixin services PMI 52.7 vs. 52.3
- RBA leaves cash rate unchanged at 1.75%
- Spain services PMI 56.0 vs. 55.2
- Italy services PMI 51.9 vs. 50.3
- France services PMI 49.9 vs. 49.9
- Germany final services PMI 53.7 vs. 53.2
- UK services PMI 52.3 vs. 53.1
- Eurozone retail sales 0.40% vs. 0.40%
- BoE releases financial stability report
- BoE Carney speech
- US factory orders -1.0% vs. -0.80%
- Germany factor orders m/m 0.00% vs. 1.0%; y/y -0.20% vs. 0.90%
- SRB leaves rates unchanged at -0.50%
- Eurozone retail PMI 48.5 vs. 50.6 previously
- UK housing equity withdrawal q/q 4.9bn vs. -10.1bn
- Canada trade balance -3.28bn vs. -2.6bn
- US trade balance -41.1bn vs. -40.0bn
- US Final services PMI 51.4 vs. 51.5
- US ISM non-manufacturing PMI 56.5 vs. 53.3
- Australia AIG construction index 53.2 vs. 46.7 previously
- Japan leading indicators 100.0% vs. 100.10%
- German industrial production m/m -1.30% vs. 0.10%
- French trade balance -2.8bn vs. -4.9bn
- Swiss foreign currency reserves 609bn vs. 602bn previously
- Switzerland CPI m/m 0.10% vs. 0.0%
- UK Halifax HPI m/m 1.30% vs. 0.40%
- UK manufacturing production m/m -0.50% vs. -1.20%
- UK industrial production m/m -0.50% vs. -1.0%
- ECB releases monetary policy meeting accounts
- ADP nonfarm employment change 172k vs. 158k
- US Weekly unemployment claims 254k vs. 269k
- Canada building permits m/m -1.90% vs. 2.10%
- Canada Ivey PMI 51.7 vs. 50.2
- US Crude oil inventories -2.2 million vs. -2.1 million
- Swiss unemployment rate 3.10% vs. 3.30%
- Germany Current account 17.5bn vs. 24.6bn
- Germany exports m/m -1.80% vs. 0.40%; imports m/m 0.10% vs. 0.70%
- French industrial production m/m -0.50% vs. -0.5%
- UK total trade balance -9.8bn vs. -10.2bn
- Canada employment change -0.7k vs. 5.5k
- Canada unemployment rate 6.80% vs. 6.90%
- US nonfarm payroll change 287k vs. 175k
- US unemployment rate 4.90% vs. 4.80%
- US average hourly earnings 0.10% vs. 0.20%