Markets Daily
Economic data in the US and Europe was mixed, leaving European currencies weaker, while bond yields drifted lower. AUD returned to 0.6480. Today’s busy data calendar features Australia housing finance, China Caixin PMI and in the US, non-farm payrolls and ISM manufacturing.
Yesterday
Australia Q2 real capex rose 2.8%, with equipment (which provides a guide to business investment in next week’s GDP report) +1.9%. As for 2023/24 investment plans, Estimate 3 was $157.8bn, 7% above Estimate 3 a year ago. Recently, firms have been increasing equipment spending to boost capacity and in response to generous tax incentives, some of which expired on 30 June 2023. Australia private credit grew by 0.3% in July, meeting our expectations. The detail included: housing 0.3%, business 0.3% and personal 0.5%. Annual growth for total credit has moderated to 5.3% currently, while the 3 month annualised pace has slowed to 4.0%. AUD/USD traded tight ranges, flickering up to 0.6508 then returning to 0.6480. Chinese equities snapped a 3-day winning streak, the Shanghai Composite -0.6%. Japan rallied while the ASX 200 closed up 0.1%. China’s official manufacturing PMI ticked up to a still soft 49.7 while the services PMI slipped to 51.0.
Currencies/Macro
The USD was mixed against G10 FX on the day. EUR/USD fell steadily from the London morning, from 1.0920 to 1.0845. GBP/USD fell 45 pips to 1.2675. USD/JPY was volatile in the NY morning but overall down 70 pips at 145.55. AUD/USD ranged sideways, steadying around 0.6485. Australia August housing prices rose 1.1%, up from 0.8% in July, the sixth consecutive monthly gain. NZD/USD is a touch higher on the day at 0.5965. AUD/NZD ranged between 1.0864 and 1.0897.
US PCE inflation in July rose 0.2%m/m and 3.3%y/y (est. 0.2% and 3.3%y/y, prior 0.2%m/m and 3.0%y/y), the core measure +0.2%m/m and 4.2%y/y (est. 4.2%y/y, prior 4.1%y/y). Personal income rose 0.2%m/m (est. +0.3%m/m, prior +0.3%m/m) and spending rose 0.8%m/m (est. +0.7%m/m, prior +0.6%m/m). Weekly initial jobless claims were 228k (est. 235k, prior revised to 232k from 230k), with continuing claims at 1.725m (est. 1,706m, prior revised to 1.697m from 1.702m). The August MNI Chicago PMI rose to 48.7 (est. 44.2, prior 42.8), with solid new orders, firmer prices paid and a rebound in employment.
Eurozone CPI inflation in August was unchanged at 5.3%y/y (est. 5.1%y/y), with core at 5.3%y/y (prior 5.5%y/y). Unemployment was unchanged as expected at 6.4%.
Interest rates
US 2yr treasury yields fell from 4.88% to 4.86%, while the 10yr yield fell from 4.11% to 4.07%, then edged back up to 4.10%. Markets are pricing the Fed funds rate, currently 5.375% (mid), to be 4bp higher at the next meeting on 20 September, with a 50% chance of a hike in November.
Australian 3yr government bond yields (futures) fell from 3.75% to 3.70% (currently 3.71%) while the 10yr yield fell from 4.04% to 3.98% (currently 4.00%). Markets are pricing the RBA cash rate, currently at 4.10%, to be unchanged in September, with a 40% chance of a hike in December.
New Zealand markets are pricing the RBNZ OCR, currently 5.50%, to be 1bp higher at the next meeting on 4 October, with a 35% chance of a hike in February.
Credit indices backed up marginally into month end with Main a bp wider at 70.5 but well off its intra-month wide of 78.5 and CDX also a bp wider at 63.5. US IG cash was flat to a bp weaker as we look toward September and expectations of autumn colours, a new football season and a re-opening of supply. Euro primary remains active with 5 issuers pricing EUR5bn, half of which came from LVMH with its EUR2.5bn deal split across 6/10yr.
Commodities
Crude markets surged towards highs for the year helped by a delayed reaction to the huge EIA inventory drop plus news that Russia had agreed on further oil cuts and it “will announce its steps next week”. The October WTI contract is up $1.98 to $3.61 while the November Brent contract is up $1.59 to $86.83. In a Bloomberg survey, 20 of 25 respondents expect Saudi Arabia to extend 1 mbpd cut into October. However, shipping data from TankerTrackers.com had Iranian shipments running at 1.85mbpd in August, the highest in 5 years after US officials privately acknowledged they’ve gradually relaxed enforcement on some sanction measures. Marathon Petroleum’s Garyville refinery may be operating at near normal rates within a week after a fire at two naphtha tanks according to people familiar with operations.
European gas prices fell to 3-week lows in a sign that markets are looking beyond the Chevron Australian LNG worker’s industrial action. The October TTF contract fell 11% with European gas inventories hitting 93% full.
Metals gave back some of the gains seen earlier in the week with mixed Chinese PMIs weighing on sentiment. Copper is down 0.4% at $8,437 while nickel fell 1.4% to $20.350. Aluminium managed to hold above $2,200 after trading as high as $2,229 earlier in the day as the FT argued its slump was “nearing a bottom” as clean energy demand rises. Aurubis warned of losses from ‘discrepancies in target inventory’ and that it has been “the target of further criminal activity following cases reported in June”. Aurubis is Europe’s largest copper producer.
Iron ore markets showed some signs of running out of steam after recent strong gains as China factory data offered mixed signals. The October SGX contract is down $1.30 from the same time yesterday to $113.20 while the 62% Mysteel index is up another $1.65 to a fresh 4 month high at $117.95. Baosteel sounded optimistic that “against a backdrop of overall improvement in the domestic economy, steel demand is expected to recover” though the EU Carbon Border Adjustment Mechanism posed “huge challenges” to Chinese steel industry. A judicial recovery plan for the BHP/ Vale Samarco joint venture received approval by a Brazilian judge which will lower the debt burden after years of negotiations following the 2015 catastrophe.
Day ahead
At 11:30am Syd, Australia July housing finance approvals should resume their uptrend, led by investors (Westpac f/c: 1.2%mth, market f/c: 0.0%mth).
At 11:45am Syd we see the August Caixin/S&P Global manufacturing PMI, forecast to be little changed on the month at 49.0.
Singapore markets are closed for Polling Day.
US August non-farm payrolls are expected to demonstrate continued deceleration in jobs growth (Westpac f/c: 190k, market f/c: 170k). Bloomberg’s ‘whisper’ estimate from anonymous users has fallen from 170k to 155k over the past couple of days which might hint at market positioning. Underlying deceleration should take some steam out of average hourly earnings for August (Westpac f/c: 0.3%mth, market f/c: 0.3%mth). However, the unemployment rate is likely to remain little changed in August as the labour market remains tight (Westpac f/c: 3.5%, market f/c: 3.5%).
The August US manufacturing ISM survey is due after payrolls, expected to tick up to 47.0 from 46.4. Final estimates for August S&P Global manufacturing PMIs for the US, UK, Japan and Eurozone are also due. Finally in the US, a large pipeline of US non-residential construction projects should keep construction spending robust (market f/c: 0.5%mth). Regional Fed presidents Bostic and Mester are expected to speak.
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