Markets Daily
Markets were mostly contained in a liquidity-thinned session given the US holiday. AUD/USD reversed its post-RBA decline and is even a little higher over the day at 0.6695. Today’s calendar includes June Caixin China services PMI and June FOMC meeting minutes.
Yesterday
The RBA kept the cash rate at 4.1%, citing the tightening already implemented and the opportunity to take time to assess the economy. The statement repeated that further tightening may be required, with inflation “still too high.” Economists were divided on the decision while pricing for a hike was around 40%, so it was no surprise that AUD/USD dropped from 0.6680 to a low of 0.6642 after 30 minutes. However, by late Sydney trade the Aussie was back to 0.6680 and even a little higher. The ASX 200 had drifted down to -0.1% into the RBA announcement then welcomed the steady hand, jumping to close up 0.5%.
Currencies/Macro
The US dollar was mixed against G10 FX on the day. EUR/USD fell from 1.0910 to 1.0880. GBP/USD rose a net 0.2% to 1.2715. USD/JPY slipped 20 pips to 144.45. AUD/USD fully retraced its post-RBA fall and then rose further to as high as 0.6705, later steadying around 0.6695. NZD/USD rose 40 pips to 0.6190. AUD/NZD extended its post-RBA decline, steadying at 1.0810, down from 1.0855 pre-RBA. The twice-monthly GDT auction resulted in a 3.3% fall in the headline index, and a 0.4% fall in whole milk powder.
The US observed a holiday for Independence Day. Canada’s manufacturing PMI for June fell to 48.8 (prior 49.0) - close to the low over the past 10 months.
Interest rates
German 10yr government bond yields roundtripped from 2.44% to 2.48% and back. Australian 3yr government bond yields (futures) partly retraced the -10bp reaction to the RBA, rising from 3.93% to 3.99%, while the 10yr yield ranged between 3.98% and 4.03%.
Commodities
Crude markets rallied in thin US holiday trade as traders digested the impact of Russian and Saudi cuts. The August WTI contract is up $1.21 at $71.00 while the September Brent contract is up $1.60 to $76.25. Despite the ‘guarantee’ from the Russia Deputy Prime Minister, Bloomberg reported that Russian crude flows to international markets surged last week to an almost 2 month high after maintenance at two key export terminals ended. Saudi will publish official selling prices for its crude for the next month in the next couple of days with Asian buyers ready to snap up other sources of crude including from the US and West Africa if Saudi and Russian production restrictions impact supply to the region.
In fuels news, Bloomberg reported that barges operating on farthest stretches of the Rhine can only operate at about half the normal capacity due to low water levels. The cost of moving diesel to the Karlsruhe area is at the highest for this time of year “in well over a decade”. The July Rotterdam diesel contract is approaching highs back to August last year. Gas prices rose in Europe as hot weather was forecast to return this coming weekend. In coal markets, a study from the Institute for Energy Economics and Financial Analysis reported that methane emissions in Australia have seen “gross under-reporting” due to leaks from many large mines and industrial facilities. Leaks of methane from oil and gas facilities have been underreported by 90% according to the study, equivalent to 28mt of CO2.
Metals market trading was subdued given the US holiday with copper down 0.46% at $8,359 but aluminium up 0.58% at $2,170. There was little fresh news though a port strike in Vancouver reached its third day and could start to hit met coal, copper concentrate and potash exports. China was said to be boosting state cobalt reserves after prices tumbled by about 60% from May last year. China’s chip-metal producers surged on export restrictions. A range of gallium and germanium smelters jumped by circa 10% on the news. China controls around 80% of the world’s gallium and germanium production while the US relies on imports for 50% of its needs.
Iron ore markets were modestly lower in thin trade with the August SGX contract down $2.05 to $108.60 while the 62% Mysteel index rose 30c to $110.95. The aggressive second half warnings from CISA and the ordering of steel output curbs in the Tangshan region for all of July due to deteriorating air quality weighed on sentiment. China Vanke told shareholders that “the real situation is a bit worse than what was expected” Friday.
Day ahead
At 11:45am Syd we see the Caixin China services PMI, expected to remain optimistic in June as a result of sustained post-pandemic spending exuberance (market f/c: 56.2 versus 57.1 in May).
US: Minutes of the June FOMC meeting are expected to add colour to the decision to pause. New York Fed president (and FOMC Vice Chair) Williams will speak at a research conference. May factory orders are expected to have risen 0.8%mth.
Eurozone: May’s producer price index will likely decline as prices comes off their highs from last year (market f/c: -1.3%yr).
Global: The S&P Global Services PMI is expected to show a robust uptick as spending remains elevated.
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