Main Themes: Chinese economic growth continued to slow, but more recent indicators on activity were stronger-than-expected. The Australian dollar is higher as a result.
Share Markets: Asian shares yesterday received a boost after some Chinese economic data topped expectations. That optimism faded into the US session, as earnings results came into focus. Mixed results for Citi weighed on financials. However, a lift in tech stocks drove the Nasdaq to another record close, for the fourth consecutive day. The S&P500 ended flat, while the Dow edged up 0.1%.
Interest Rates: Yields on US treasuries fell slightly, as bonds were supported by the mildly risk averse tone. US 10-year yields fell 3 basis points to 2.09%. Attention will turn to US retail sales data tonight to gauge the health of the US economy.
Foreign Exchange: The US dollar index edged higher, while the euro and GBP weakened. Sterling is continuing to be weighed down by Brexit woes, the prospect of a new prime minister and a chance that the BoE would ease monetary policy. The Australian dollar lifted on the better-than-expected Chinese economic data yesterday, and added to those gains tonight. AUD was trading at 70.1 US cents before the Chinese data release before rising to 70.4 US cents this morning.
Commodities: Oil prices weakened, as production in the Gulf of Mexico restarted after tropical storm Barry. Gold prices fell, moving inversely to the US dollar. Prices of other commodities failed to gain significantly on the stronger-than-expected Chinese data, suggesting trade concerns are continuing to weigh.
Australia: No major data to report.
China: GDP growth in the June quarter slowed from an annual rate of 6.4% in the March quarter to 6.2% in the June quarter. It was the weakest annual growth since quarterly data has been recorded in 1992. The result was in line with consensus expectations.
Other data indicated a pick up in activity in June. Growth in industrial production edged up from an annual rate of 5.0% in May to 6.3% in June. Retail sales growth also strengthened from an annual rate of 8.6% in May to 9.8% in June. There however, continues to be downside risks from trade tensions, raising questions as to how much this improvement will be sustained. Moreover, the pick up is at odds with PMI indicators released earlier in the month.
United Kingdom: The Bank of England Governor said that the BoE had “the flexibility to respond to circumstances in either direction – stronger or weaker inflation – if necessary”.
Rightmove house prices fell 0.2% in July, the first decline since December 2018, as Brexit concerns continue to weigh on confidence within the housing market.
United States: The NY empire manufacturing index lifted from a 2½-year low of -8.6 in June to 4.3 in July, providing an early sign that manufacturing activity may have stabilised in the month.
Today’s key data and events:
NZ CPI Q2 exp 0.6% prev 0.1% (8.45am)
AU RBA Board Meeting Minutes Jul (11.30am)
UK ILO Unemployment Rate May exp 3.8% prev 3.8% (6.30pm)
EZ Trade Balance May exp €17.5bn prev €15.3bn (7pm)
EZ EU ZEW Expectations Jul prev -20.2 (7pm)
EZ Ger. ZEW Expectations Jul exp -22.0 prev -21.1 (7pm)
US Import Price Index Jun exp -0.6% prev -0.3% (10.30pm)
US Retail Sales Jun exp 0.1% prev 0.5% (10.30pm)
US Industrial Production Jun exp 0.1% prev 0.4% (11.15pm)
US NAHB Housing Mkt Index Jul exp 64 prev 64 (12am)
US Business Inventories May exp 0.4% prev 0.5% (12am)
US Total Net TIC Flows May prev -$7.8bn (6am)
Times are AEST. All data forecasts are m/m or q/q and seasonally adjusted unless otherwise specified. Forecasts for Australian data are our forecasts and for other countries they are consensus forecasts.
Janu Chan, Senior Economist