Market Briefing: Busy week ahead
The August edition of our Event Radar & Views In A Nutshell pack is here.
Consolidation. Quiet end to a volatile week. Equities continue to recover. Bond yields slip back. USD treading water. AUD below 200-day moving average.
Divergence. RBA pricing still stands out. First RBA cut factored in by Feb. By this point the US Fed & RBNZ are assumed to have cut by ~120-140bps.
Event radar. Several important releases this week including US CPI/retail sales, China data batch, UK jobs/inflation, RBNZ meeting, & AU jobs/wages.
It was a rather quiet and uneventful end to a volatile week on Friday. The recovery in equities continued with the US S&P500 and Japanese Nikkei edging up ~0.5-0.6%. In the end the turbulence from last Monday was unwound with the S&P500 effectively unchanged compared to a week ago. The Nikkei is still lower, but well up from its panic sell-off bottom. Industrial metals and energy prices also rose with WTI crude oil up ~1%. By contrast, bond yields gave back ground with the benchmark US 10yr rate shedding ~5bps (now ~3.94%). In FX, the USD index consolidated. EUR is hovering around ~$1.0920, GBP is close to ~$1.2760, and USD/JPY tracked the pullback in bond yields to be under ~147 (~9.4% from its early-July multi-decade peak). The AUD is below of its 200-day moving average (~$0.6598), while the NZD (now $0.60) is in a holding pattern with Wednesday’s RBNZ meeting (where we think there is a good chance the first rate cut is delivered) in focus.
It is a busy week with several major global releases due that might spark renewed bouts of volatility. In the US, PPI inflation (Tues AEST), CPI inflation (Weds AEST), and retail sales (Thurs AEST) are released. The monthly China activity data batch (Thurs) is also due, the RBNZ meets (Weds), and in the UK the jobs report (Tues), CPI inflation (Weds), Q2 GDP (Thurs), and retail sales (Fri) are scheduled. In our opinion, the UK economic data is likely to show a combination of widening cracks in the labour market, sluggish growth momentum, and/or cooling services inflation. This type of mix may see Bank of England rate cut expectations lift, which in turn drags on GBP. The market is only factoring in the BoE’s second rate cut by November, with four reductions priced in by next June.
In the US, we believe the PPI and CPI data could show a moderation in underlying inflation pressures. Leading indicators point to disinflation in areas like used car prices and airfares, while key services sub measures such as rents also look to have decelerated. Signs US core inflation is losing steam would reinforce US Fed rate cut assumptions. Markets are discounting ~100bps worth of Fed easing by year-end. The lower level of US interest rate expectations could exert downward pressure on the USD, in our opinion, especially if US retail sales are subdued but don’t fall off a cliff, supporting a ‘soft landing’ narrative rather than reigniting disruptive recession fears.
Global event radar: RBNZ Meeting (Weds), UK CPI (Weds), US CPI (Weds), Japan GDP (Thurs), China Data (Thurs), UK GDP (Thurs), US Retail Sales (Thurs), Global PMIs (22nd Aug), Japan CPI (23rd Aug), Jackson Hole Symposium (22-24 Aug)
AUD corner
The AUD drifted back a touch on Friday to end the week near ~$0.6570. That said, despite the slip the AUD is still close to ~1% higher compared to where it kicked things off last Monday and ~3.5% above it panic sell-off low point. It is a similar story on the crosses with the AUD a bit lower on Friday, but on net, the AUD appreciated over the week thanks to the rebound in risk sentiment and ‘hawkish’ RBA rhetoric. AUD/EUR (now ~0.6020), AUD/GBP (now ~0.5151), and AUD/CNH (now ~4.7145) are grinding back up towards their respective one-year averages, AUD/NZD is tracking above its 50-day moving average (~1.0952), and AUD/JPY has stabilised around ~96.60 (the bottom end of its six-month range).
Domestically, RBA Deputy Governor Hauser speaks today (12pm AEST), Q2 wages data is released on Tuesday, the monthly jobs report is due on Thursday, and RBA Governor Bullock testifies to Parliament on Friday. We believe the tone and message from the RBA Deputy Governor and Governor should echo recent ‘hawkish’ vibes. On the data front, we think the still high level of activity across the labour-intensive services sectors points to wages growth of 4%pa (above the run-rate consistent with on target inflation) and another solid jobs report. Unemployment is projected to hold at 4.1%, below estimates of ‘full-employment’. Indications labour demand remains positive could reinforce our long-standing thoughts that the RBA is on a different path to its global peers with the bank expected to lag others in terms of when it starts lowering interest rates and how far it goes during the next easing cycle.
We feel positive risk appetite in markets and the domestic/global economic dynamics can help the AUD converge up towards levels implied by relative yield spreads and other fundamentals. More specifically, AUD/NZD is in focus this week with the RBNZ meeting (Weds). Based on the stumbling NZ economy, upswing in unemployment, and weakening inflation pulse we think there is a strong chance the RBNZ delivers its first cut. This isn’t a consensus view. Markets are discounting a ~70% chance the RBNZ lowers rates by 25bps, while 12 of 21 analysts surveyed see the RBNZ holding fire. In our judgement, a RBNZ rate cut and signal more may follow could push AUD/NZD up towards the top of its cyclical range.
AUD event radar: AU Wages (Tues), RBNZ Meeting (Weds), UK CPI (Weds), US CPI (Weds), Japan GDP (Thurs), AU Jobs (Thurs), China Data (Thurs), UK GDP (Thurs), US Retail Sales (Thurs), RBA Gov. Bullock Speaks (Fri), Global PMIs (22nd Aug), Japan CPI (23rd Aug), Jackson Hole Symposium (22-24 Aug)
AUD levels to watch (support / resistance): 0.6500, 0.6540 / 0.6605, 0.6630
SGD Corner
USD/SGD has consolidated near the bottom of its 2024 range over the past week (now ~1.3240) with lower US bond yields and lower level of the USD index holding down the pair. On the crosses, EUR/SGD is tracking around ~1.4450, ~0.5% from its ten-month lows, and although SGD/JPY has ticked up, at ~111.05 it remains ~7.5% from its historic peak touched in mid-July.
As discussed above, focus this week in the US will be on PPI inflation (Tues), CPI inflation (Weds), and retail sales (Thurs AEST). The monthly China activity data batch is also due (Thurs). In our opinion, signs US inflation pressures are cooling, coupled with a soft US retail sales report could reinforce US Fed rate cut expectations, weighing on the USD (and USD/SGD).
SGD event radar: US CPI (Weds), Japan GDP (Thurs), China Data (Thurs), US Retail Sales (Thurs), Global PMIs (22nd Aug), Japan CPI (23rd Aug), Singapore CPI (23rd Aug), Jackson Hole Symposium (22-24 Aug)
SGD levels to watch (support / resistance): 1.3160, 1.3200 / 1.3280, 1.3330
Market Moves
Peter Dragicevich
Currency Strategist - APAC
Upcoming Events
MONDAY (12th August)
AUD RBA Deputy Gov. Hauser Speaks (12pm)
TUESDAY (13th August)
AUD Consumer Confidence (Aug) (10:30am)
AUD Wages (Q2) (11:30am)
AUD Business Conditions (July) (11:30am)
GBP Jobs Report (June/July) (4pm)
EUR Germany ZEW Survey (Aug) (7pm)
USD NFIB Small Business Optimism (July) (8pm)
USD PPI Inflation (July) (10:30pm)
WEDNESDAY (14th August)
USD Fed’s Bostic Speaks (3:15am)
NZD RBNZ Decision (12pm)
NZD RBNZ Gov. Orr Speaks (1pm)
GBP CPI Inflation (July) (4pm)
EUR GDP (Q2 P) (7pm)
EUR Industrial Production (June) (7pm)
USD CPI Inflation (July) (10:30pm)
THURSDAY (15th August)
NZD Card Spending (July) (8:45am)
JPY GDP (Q2) (9:50am)
AUD Jobs Report (July) (11:30am)
CNY Industrial Production (July) (12pm)
CNY Retail Sales (July) (12pm)
CNY Fixed Asset Investment (July) (12pm)
GBP GDP (Q2) (4pm)
USD Retail Sales (July) (10:30pm)
USD Initial Jobless Claims (10:30pm)
USD Philly Fed Outlook (Aug) (10:30pm)
USD Fed’s Musalem Speaks (11:10pm)
USD Industrial Production (July) (11:15pm)
FRIDAY (16th August)
USD NAHB Housing Index (Aug) (12am)
USD Fed’s Harker Speaks (3:10am)
AUD RBA Gov. Bullock Speaks (9:30am)
NZD RBNZ Gov. Orr Speaks (10:30am)
GBP Retail Sales (July) (4pm)
USD Housing Starts/Building Permits (July) (10:30pm)
SATURDAY (17th August)
USD Uni. of Michigan Sentiment (Aug P) (12am)
USD Fed’s Goolsbee Speaks (3:25am)
*Note, all times/dates provided are AEST
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