Markets Daily
The US dollar rose with bond yields after mixed economic data, then dropped as Fitch cut its US sovereign credit rating. AUD remained heavy after the RBA’s steady hand, down to 0.6615. Today’s light calendar includes US July ADP private payrolls.
*Please click ‘Read more’ for data table
Yesterday
The RBA held the cash rate at 4.10% for a second month. Much of the commentary was similar to July, saying the hold would provide “further time to assess the impact of the increase in interest rates to date and the economic outlook” but that “some further tightening of monetary policy may be required,” depending on data. Economists leant slightly in favour of a hike but money markets only priced a 30% chance. This limited the impact on AUD, which slipped from 0.6700 to 0.6660, attempted to recover for a while, then extended to 0.6650/55. The ASX 200 was +0.3% pre-RBA, closing +0.5%. On the Australian data front, housing finance came in weaker than expected, the total value of new finance approvals dipping -1%, led by a -2.8% fall in owner occupier loans, partially offset by a 2.6% rise in investor loans. Dwelling approvals came in broadly as expected in June, down -7.7%. The detail showed a sharp unwinding in private sector units, down -19.7% in the month. As expected, this was driven by a pull-back in the lumpy ‘high-rise’ category (–16%) following an incredibly large spike in the month prior, centred in NSW (+63%). The July CoreLogic home value index rose 0.8%mth; –2.7%yr.
Currencies/Macro
EUR/USD was a touch lower on the day at 1.0980 when Fitch Ratings lowered its US sovereign credit rating from AAA to AA+, its first such move since at least 1994 according to Bloomberg. Treasury Secretary Yellen said she strongly disagreed with the decision. EUR/USD rose as high as 1.1020. GBP/USD popped slightly higher on the news but remains down half a cent on the day at 1.2785.
USD/JPY rose from 142.25 to 143.55 – a three-week high – then dipped from 143.30 to under 142.80 on the Fitch headlines. AUD was easily weakest in the G10 in the wake of the RBA meeting, extending its decline as far as 0.6602, a one-month low.
NZD/USD trimmed losses in late NY trade to -0.8% at 0.6160. The twice-monthly GDT dairy auction resulted in an overall price fall of -4.3%, with whole milk powder down 8.0%.AUD/NZD slightly the negative reaction to the RBA to 1.0740, net -0.7%.
The US ISM manufacturing survey in July rose by less than expected to 46.4 (est. 46.9, prior 46.0). Employment stuttered to 44.4 (prior 48.1), while prices paid remained soft at 42.6 (est. 44.0, prior 41.8), production rose to 48.3 (from 46.7) and orders rose to 47.2 (from 45.6). JOLTS job openings fell to 9.582m in June (est. 9.600m, prior revised to 9.617m from 9.824m) – lowest since April 2021. The quit rate fell from 2.6% to 2.4%.
Atlanta Fed president Bostic said a rate hike at the next meeting in September would not be needed: “There has been significant progress in the battle…Inflation is well off of its highs that we saw in the last year. And recent numbers have come in promising in ways that suggest that we might be seeing continued declines.”
Eurozone unemployment in June fell to a Eurozone record low of 6.4% (est. 6.5%, prior revised to 6.4% from 6.5%).
The UK Nationwide house price index in July fell 0.2%m/m (est. -0.5%m/m), taking the annual pace to -3.8%y/y (est. -4.0%y/y).
Interest rates
US 2yr treasury yields rose from 4.87% to 4.90%, the 10yr yield rose from 3.96% to 4.02%, but the cash market was closed when the Fitch downgrade was announced. Markets are pricing the Fed funds rate, currently 5.375% (mid), to be 6bp higher at the next meeting on 21 September.
Australian 3yr government bond yields (futures), which initially fell 9bp from 3.86% in response to the RBA yesterday, fell another 4bp to 3.73% before reversing in sympathy with global moves to 3.80%. The 10yr yield bounced off 3.96% to 4.06%. Markets are pricing the RBA cash rate, currently at 4.10%, to be 5bp higher in September, 17bp higher by November.
New Zealand markets are pricing the RBNZ OCR, currently 5.50%, to be 5bp higher at the next meeting on 16 August and to peak at 5.68% in November.
It was a quiet session for credit with indices softer reflecting broader sentiment which saw both Main and CDX 1.5bp wider to 69.5 and 64.5 respectively. US cash was also 2-3bp wider after a strong recent run and primary activity in the US failed to back up the strong session on Monday when 10 issuers priced close to USD20bn.
Commodities
Crude markets finally took a modest breather from the super strong gains seen in July with signs of profit-taking capping prices. The September WTI contract is down 43c at $81.37 while the October Brent contract is up 24c at $85.67. The Biden administration was said to have rejected offers to replenish the SPR though it “remained committed to its replenishment strategy”. A Bloomberg survey of analysts pointed to OPEC output plunging by 900kbpd to an average of 27.79mb last month, the biggest reduction since the depth of the Covid pandemic. OPEC’s Joint Ministerial Monitoring Committee is scheduled to meet August 4 and the focus will be on whether Saudi Arabia announces an extension of its 1mbpd cut into September. A recent Bloomberg survey had 15 of 22 analysts and traders expecting the Saudi cut to be extended while 6 participants expected the cuts to be tapered by between 250 to 500kbpd. API reported a hefty 15.4mb draw in crude stockpiles. Analysts were also warning that China’s oil demand may have peaked for 2023 with FGE noting “there is not much room for growth left in the second half” while Energy Aspects noted that Chinese imports are expected to weaken to 15.8mbpd in Q3. And India’s imports of Russian oil dropped for a second month in July and are expected to drop further in August according to KPLER.
Metals gave back pretty much all of the previous day’s gains as frustration over vague policy promises in China weighed on sentiment. Copper is down 2.2% at $8,636 while aluminium is down 1.3% at $2,253. Copper hit a 3-month high on Monday. Weak Chinese PMI data for July added to the weaker price action. A report commissioned by the French government noted that nickel processing plants owned by Glencore, Trafigura and Eramet in New Caledonia are at risk of closing due to being uncompetitive given high labour and energy costs, social unrest and regulatory curbs. The report recommends loosening restrictions on nickel mining and ore exports. Codelco was reported as seeking approval for a $2.5bn extension of its Hales mine in northern Chile to extend operations for 30 years.
Iron ore markets lost further ground as plunging new home sales in July in China added to signs that we are yet to see any signs of improvement in the real estate sector there. The September SGX contract is down $1.40 from the same time yesterday to $106.00 while the 62% Mysteel index is down $1.55 to $108.80. Sales by China’s biggest developers fell 33.1%yy in July according to preliminary data from the China Real Estate Information Corp. Property Developer Country Garden cancelled a share placement overnight after news that it faces US$2.9bn in debt repayments for the rest of the year.
Day ahead
US: July’s ADP private payrolls change is expected to come in at 190k, a sharp slowdown from the 497k in June which turned out to be a very poor guide to the official data from the Bureau of Labor Statistics (149k).
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