Wij gebruiken een aantal cookies om u de best mogelijke browser ervaring te bieden. Door deze website te blijven gebruiken, gaat u akkoord met ons gebruik van cookies. U kunt hier meer leren over ons cookie-beleid of door op de link te klikken onderaan iedere pagina van onze website.
Australian private capital expenditure intensions were revised for the coming year and, at A$145.2 billion, it was enough of an increase to cause a pop in the AUD, with AUD/USD hitting a high of 0.9372.
The RBA won’t see too much in the finer details to suggest animal spirits are driving spending, although they will be modestly relieved that signs of rebalancing have continued, with spending plans for the non-mining sector revised to +5% (from+8.6%).
The swaps market hasn’t budged in terms of market pricing and, at -7 basis points, feels fair. It’ll be interesting to see the RBA commentary around the investment plans in the September 2 meeting. However, this number does little to change the view that the RBA are on hold for a very long time.
There is a strong possibility the capex numbers will subtract from the Q2 GDP print on September 3, but this shouldn’t weigh too much on the AUD. In fact, a daily close above 0.9346 (the double bottom neckline) could target a move to 0.9450 and it’s interesting that AUD/USD has held firm of late, while GBP/USD and EUR/USD – not to mention iron ore – have crumbled.
There was a limited reaction to the capex print in the equity market, with Asia fairly offered all round. There has definitely been a bearish vibe to today’s trade though, although there hasn’t really been one single reason – profit taking seems to be the likely cause.
There has been strong selling of iron-ore-related names, as both rebar and iron ore futures have been chopped up, suggesting today’s spot price will close down for another day. Buying iron ore stocks here is one of the more adventurous contrarian plays out there. There will be a few names, like Grange Resources, Atlas Iron and Gindalbie Metals, who will be seeing the spot price dangerously close to their break-even rate.
Looking for short-term USD weakness
I suggested yesterday that the USD was overbought, potentially seeing too much in the way of position adjustment – and this seems to have played out. It takes a brave soul to be long EUR/USD. I would personally be looking to fade any moves to 1.3280.
The fact that German bund yields are negative through maturities of four years out highlights the aggressive market pricing and expectations. So it seems we could see some push back around these expectations, with a number of economists calling for action in next week’s ECB meet.
It seems likely that we’ll see the ECB cut deposit rates in the coming months by another ten basis points. The fact the ECB have brought in the expertise of Blackrock to advise on an asset-backed security buying (ABS) program suggests we’ll hear more about this in the upcoming meeting.
However, these actions are largely in the price now and it’s no guarantee we’ll see the action in September. Still, the important thing is the ECB are fighting a massive fire using conventional, and increasingly unconventional policy tools. These actions are increasingly at odds with what we’re seeing in the US, UK, Australia and other G10 currency nations. We have to therefore think of the EUR as the funding currency of choice in the carry trade.
European inflation in focus
It promises to be an interesting European session, with Spanish and German inflation numbers in play and, of course, both play such a strong role in Friday’s Eurozone aggregate inflation number.
The market is looking for 0.3% in Friday’s Eurozone CPI print, with the economist range between 0.2% and 0.5%, but it’s hard to believe the range will be tested. However, a number below 0.2% would be significant and the ECB would have to come in aggressively to show the market they mean business.
It’s tough being a central banker, but when the ECB have to deal with stubbornly high unemployment, falling inflation expectations and limited growth, it makes the job extremely difficult. Add in geo-political concerns, which are clearly hurting confidence, plus major divergence among nations around budget controls, and you have a situation where falling inflation manifests on itself, with disinflation potentially rearing its ugly head.
In US trade, the main event is the second read of the Q2 GDP print, with economists expecting a slight revision lower to 3.9%. We also get initial jobless and July pending home sales. Rates and FX traders will also be keeping an eye on the $29 billion seven-year US treasuries auction, given the strong demand we have seen this week in short-dated paper. The average bid to cover this year has been 2.59%, so a number above here would suggest there is still healthy demand for slightly longer dated paper, even at current levels.