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Weekly Market Wrap: RBNZ Rate Cut and US Retail Sales

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The US dollar opened on a bullish note this week, maintaining the gains from the NFP release from the last Friday. The economic calendar on Monday saw China’s trade balance, rising more than expected in July to $52.32 billion, however, both imports and exports declined during the month. The Bank of Japan released the monetary policy meeting minutes from the July meeting which saw the BoJ members agreeing to a comprehensive review of the central bank’s policies. In Germany, industrial output picked up steam, rising 0.80% in June with May’s data seeing some positive revisions as well.

China’s CPI data released on Tuesday showed that consumer prices grew at a slower pace, rising only 1.80% on a year over year basis while producer price index fell 1.70%. The decline in consumer inflation came largely on falling food prices. In Germany, imports and exports data pointed to a modest recovery in June, with exports rising 0.30%. In the UK, industrial production data released by the Office for National Statistics showed a surprise increase. Industrial production jumped 0.10% in June, however, manufacturing production remained weak, falling 0.30%. The US dollar turned weaker in the day following the release of the wholesale inventories which increased only 0.30% during June. Nonfarm productivity released for the second quarter showed that productivity in the US, fell 0.50% during the quarter. The data showed that there were no wage pressures, which is seen as an early indication of rising inflation.

The US dollar continued to remain bearish falling for the second consecutive day on Wednesday. In Asia, RBA Governor Glenn Stevens gave a farewell speech where he stressed on the need for fiscal stimulus spending. He did not make any direct references to the Australian dollar which surged as a result. “Challenges remain for Australia, not least sustaining a stronger growth outlook over the longer term,” Governor Stevens said. Home loans in Australia increased 1.20% in June after contracting 1.0% in May.

The British pound was seen volatile on Wednesday with the sterling recovering after it was reported that the Bank of England was having problems purchasing bonds. Pension funds were unwilling to sell the bonds to the central bank with yields on the 10-year bonds trading near 0.50%, a record low.

Oil prices also came under pressure on Wednesday after the EIA report showed that crude oil inventories increased 1.10 million, which was higher than the estimates of 1.30 million barrels in draw down. WTI Crude oil gave up its gains after initial rising earlier in the week. Reports suggested that OPEC member countries were planning an informal meeting later in September, giving rise to speculation for a coordinated response to cutting production.

The markets were also geared up for the RBNZ monetary policy meeting. The expectations for a 25bps rate cut were already priced in. The RBNZ delivered as expected but despite the dovish statement which called for more rate cuts, the New Zealand dollar remained strong. In its statement, the RBNZ said, “further policy easing will be required to ensure that future inflation settles near the middle of the target range.”

In Europe, French consumer prices declined 0.40%, matching flash estimates. The 0.40% declines come following June’s modest increase of 0.10%. On a year over year basis, French CPI rose by 0.20%, rising at the same pace as the month before. The US dollar was seen recovering on Thursday. Import price data from the US labor department showed prices rising for the second consecutive month, at 0.10% in July, albeit at a slower than expected pace. On a year over year basis, import prices were down 3.70%, staying subdued for nearly two years.

There was more bad news from the US as Friday’s retail sales report showed moderation. After retail sales increased for two consecutive months, retail sales for June remained flat during the month, while core retail sales contracted 0.30%. Producer price index also remained weak, falling 0.40% on the month.

Summary of Economic events this week

  • Japan current account 1.65 trillion vs. 1.60 trillion
  • BoJ Bank lending 2.10% vs. 2.0%
  • Australia ANZ job advertising m/m -0.80% vs. 0.40% previously
  • China trade balance 343bn vs. 313bn
  • China-US denominated trade balance 52.3bn vs. 47.6bn
  • Japan economy watchers sentiment 45.1 vs. 42.60
  • German industrial production m/m 0.80% vs. 0.90%
  • Switzerland CPI m/m -0.40% vs. -0.50%
  • Sentix investor confidence 4.2 vs. 3.6
  • Canada building permits m/m -5.50% vs. 2.70%
  • UK, BRC retail sales monitor y/y 1.10% vs. -0.50% previously
  • Japan M2 money stock y/y 3.30% vs. 3.30%
  • Australia NAB business confidence 4 vs. 5 previously
  • China CPI y/y 1.80% vs. 1.80%
  • China PPI y/y -1.70% vs. -2.0%
  • Switzerland Unemployment rate 3.30% vs. 3.30%
  • German trade balance 21.7bn vs. 23.2bn
  • Japan preliminary machine tool orders y/y -19.60% vs. -19.90% previously
  • UK manufacturing production m/m -0.30% vs. 0.0%; industrial production m/m 0.10% vs. -0.10%
  • UK goods trade balance -12.4bn vs. -9.6bn
  • NIESR GDP estimate 0.30% vs. 0.60% previously
  • US wholesale inventories m/m 0.30% vs. 0.0%
  • Japan core machinery orders m/m 8.30% vs. 3.40%
  • Japan PPI y/y -3.90% vs. -4.0%
  • Australia Westpac consumer sentiment 2.0% vs. -3.0% previously
  • Australia home loans m/m 1.20% vs. 2.40%
  • RBA Gov. Stevens speech
  • Japan tertiary industry activity m/m 0.80% vs. 0.30%
  • French industrial production m/m -0.80% vs. 0.30%
  • US crude oil inventories 1.10 million vs. -1.30 million
  • RBNZ rate statement
  • RBNZ official cash rate 2.00% vs. 2.00%
  • UK RICS house price balance 5.0% vs. 19.0%
  • Australia MI inflation expectations 3.50% vs. 3.70% previously
  • RBNZ Gov. Wheeler speaks
  • France final CPI m/m -0.40% vs. -0.40%
  • Canada NHPI m/m 0.10% vs. 0.20%
  • US weekly unemployment claims 266k vs. 270k
  • US import prices m/m 0.10% vs. -0.20%
  • New Zealand retail sales q/q 2.30% vs. 1.0%; core retail sales q/q 2.60% vs. 1.10%
  • China industrial production y/y 6.0% vs. 6.20%
  • China retail sales y/y 10.20% vs. 10.50%
  • Germany preliminary GDP q/q 0.40% vs. 0.30%
  • Germany final CPI m/m 0.30% vs. 0.30%
  • Germany wholesale prices m/m 0.20% vs. 0.30%
  • UK construction output m/m -0.90% vs. 0.90%
  • Eurozone flash GDP q/q 0.30% vs. 0.30%
  • Eurozone industrial production m/m 0.60% vs. 0.60%
  • US core retail sales m/m -0.30% vs. 0.20%; US retail sales m/m 0.0% vs. 0.40%
  • US PPI m/m -0.40% vs. 0.10%; Core PPI m/m -0.30% vs. 0.20%
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