The markets opened to a new trading month this week with Monday seeing global manufacturing PMI’s as traders kept an eye on the RBA and Bank of England monetary policy decisions. In China, manufacturing and services PMI was mixed as the official PMI data showed that manufacturing slipped into contraction at 49.9 while the Caixin PMI data showed an increase to 50.6 from 58.7. The subdued PMI’s point to a potential RRR cut from the PBoC, as Citigroup notes that “the Chinese central bank was likely to cut the reserve ratio requirement (RRR), which is a number of cash banks are required to hold.”
In the Eurozone, PMI’s were seen faring better with the Eurozone manufacturing PMI rising to 52.0. In the UK, manufacturing fell to 48.2, confirming the broad view that the UK was likely to see a slower pace of growth. The US ISM manufacturing PMI was weaker in July, falling to 52.6, more than the forecast 53.10.
Tuesday saw Japan’s Prime Minister Shinzo Abe officially announcing the details of the government’s fiscal stimulus plans worth 28 trillion yen. However, the yen was unimpressed by the details as scratching the surface showed that only 7.5 billion yen was allocated to direct spending. Following the news, the yen resumed its declines from the last week.
On the economic front, the RBA cut interest rates by 25bps, lowering the key lending rate to 1.50%. Governor Glenn Stevens said, “Low-interest rates have been supporting domestic demand, and the lower exchange rate since 2013 is helping the traded sector” after announcing the rate cuts.
Early Wednesday, employment report from New Zealand showed that average hourly earnings increased a pace of 0.80% in the second quarter, which was slightly below forecasts of 0.90%. On a year over year basis, wage inflation remained steady at 1.50%. Sarah Williams, the business prices manager, said, “The gap between the labour cost index and inflation was 1.1 percentage points, the smallest gap since the end of 2014.”
In the UK, services PMI released by Markit showed that the services sector also contracted. The services PMI fell to 47.4 in July posting the biggest month over month declines since Markit started keeping records.
Chris Williamson from Markit said “The marked service sector downturn follows news from sister PMI surveys showing construction activity suffering its steepest decline since mid-2009 and manufacturing output contracting at the fastest rate since late-2012. At these levels, the PMI data are collectively signalling a 0.4 percent quarterly rate of decline of GDP.”
In the US, ADP private payrolls showed another month of steady hiring. Private firms added 179k jobs to the economy in July, beating estimates of 170k.
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.
The US crude oil inventories report showed an unexpected increase. US stock piles increased 1.4 million barrels against expectations of a drawdown of 1.6 million. Oil prices were however subdued after earlier in the week, WTI Crude oil fell to below $40 handle briefly.
Thursday also saw investors brace for the Bank of England’s monetary policy meeting. Expectations were high as the BoE was seen cutting interest rates to 0.25%. Delivering on market expectations, the Bank of England also increased its asset purchases to 475 billion while also announcing a new funding scheme for banks to ensure that the rate cut benefits were passed to customers.
Earlier in the day, Australia retail sales data showed a 0.10% increase in June, marking a slower than expected pace of gains and was below forecasts of a 0.30% increase and was down from May’s increase of 0.20%.
Gold prices pushed higher this week with the upside momentum gaining after the BoE’s stimulus announcement. Spot gold was seen trading near last week’s high near $1365 on Friday and ahead of the Nonfarm payrolls report. The July NFP was expected to show that the US economy would add 180k jobs while the unemployment rate was forecast to remain unchanged at 4.80%.
The markets opened on Friday with the US dollar posting two consecutive days of gains. Traders turned attention to the payrolls report from the US and Canada. In the US, data from the Bureau of Labor Statistics showed that the US economy added 255k jobs, marking the second month of increase after May’s dismal 11k. June payrolls were also revised higher to 292k from previously reported 287k. Overall, the July payrolls report beat market expectations strongly and logged the best 2-month job growth this year.
The US dollar surged on the news as markets were expecting to see another modest print after June’s report. Canadian labor market data was also released simultaneously which showed that the economy lost over 31k jobs in June, missing forecasts of a 9k increase. The unemployment rate was unchanged at 6.90%.
Summary of Economic events this week
- China manufacturing PMI 49.9 vs. 50.0
- China non-manufacturing PMI 53.9 vs. 53.7 previously
- China Caixin manufacturing PMI 50.6 vs. 48.7
- Japan manufacturing PMI 49.3 vs. 49.0 previously
- Spain manufacturing PMI 51.0 vs. 51.6
- Italy manufacturing PMI 51.2 vs. 52.5
- France manufacturing PMI 48.6 vs. 48.6
- Germany manufacturing PMI 53.8 vs. 53.7
- Eurozone manufacturing PMI 52.0 vs. 51.9
- UK manufacturing PMI 48.2 vs. 49.1
- US (Markit) manufacturing PMI 52.9 vs. 52.9
- ISM manufacturing PMI 52.6 vs. 53.1
- ISM prices paid 55.0 vs. 60.9
- US construction spending m/m -0.60% vs. 0.40%
- Japan monetary base y/y 24.70% vs. 24.30%
- Australia building approvals m/m -2.90% vs. 0.90%
- Australia trade balance -3.20bn vs. -2bn
- New Zealand inflation expectations q/q 1.70% vs. 1.60%
- RBA cuts cash rate to 1.50%
- Japan consumer confidence 41.3 vs. 42.2
- Australia commodity prices y/y -2.0% vs. -10.0% previously
- Switzerland retail sales y/y -3.90% vs. -2.0%
- Switzerland manufacturing PMI 50.1 vs. 51.90
- UK construction PMI 45.9 vs. 44.2
- Eurozone PPI m/m 0.70% vs. 0.40%; y/y -3.10% vs. -3.40%
- PCE Price index core m/m 0.10% vs. 0.20%; y/y 1.60% vs. 1.60%
- PCE price index y/y 0.90% vs. 0.90%
- Personal income m/m 0.20% vs. 0.30%
- Personal spending m/m 0.40% vs. 0.30%
- UK BRC Shop price index y/y -1.60% vs. -2.0% previously
- Australia AIG services index 53.9 vs. 51.3 previously
- BoJ releases monetary policy meeting minutes
- New Zealand ANZ commodity prices m/m 2.0% vs. 3.70% previously
- China Caixin services PMI 51.7 vs. 52.9
- Spain services PMI 54.1 vs. 55.1
- Italy services PMI 52.1 vs. 51.1
- France services PMI 50.5 vs. 50.3
- Germany final services PMI 54.4 vs. 54.6
- Eurozone final services PMI 52.9 vs. 52.8
- UK services PMI 47.4 vs. 47.4
- Eurozone retail sales m/m 0.0% vs. 0.0%
- US ADP Nonfarm Employment change 179k vs. 171k
- US final services PMI 51.4 vs. 51.0
- ISM non-manufacturing PMI 55.5 vs. 56.0
- Crude oil inventories 1.4mn vs. -1.6mn
- Australia retail sales m/m 0.10% vs. 0.30%
- Bank of England cuts interest rates to 0.25%
- BoE expands asset purchases to 435bn
- BoE Gov. Carney speech
- US initial jobless claims 269k vs. 266k
- US factory orders -1.50% vs. -1.80%
- Japan average cash earnings y/y 1.30% vs. 0.40%
- RBA releases statement on monetary policy
- Japan leading indicators 98.40% vs. 99.60%
- Germany factory orders m/m -0.40% vs. 0.50%
- France trade balance -3.4bn vs. -3.9bn
- Swiss foreign currency reserves 615bn vs. 609bn previously
- Italy industrial production m/m -0.40% vs. 0.30%
- Canada employment change -31.2k vs. 9.0k
- Canada unemployment rate 6.90% vs. 6.90%
- US nonfarm payrolls 255k vs. 181k
- US unemployment rate 4.90% vs. 4.80%
- Average hourly earnings 0.30% vs. 0.20%