Europe ignores Asian rally as risk trades dropped sharply despite a strong German GDP number. US Retail Sales offered little reason to expect a Friday the 13th rally in risk
German GDP growth in Q2 was out at a robust 2.2% QoQ, a testament to the strength of German exports and the benefits of the weak Euro. But with the Euro now more than 10% off its lows and the fact that GDP data is always a woefully "rear view mirror" number, the German DAX dropped rather sharply on the day today after having almost miraculously reached new highs for the year earlier this month. The sell-off in risk in Europe derailed the rally attempt from Asia, where Chinese equities made a strong comeback.
New Zealand Data
New Zealand posted very strong retail sales data for June, which, combined with a chunky risk rally in Asia squeezed fresh NZD shorts mercilessly, but by this writing, NZDUSD, among others, was right back to where it was trading yesterday as the risk aversion in the European session deflated the rally. Observers should also focus on the weak House Price Index number from New Zealand. By late 2007, New Zealand was involved in an housing bubble, which the RBNZ was fighting by consistently raising the rate to as high as 8.25%. House prices then corrected about 10% during the global financial crisis an took back most of that correction as the RBNZ cut rates to 2.50%. Now, it appears the market is rolling over again, despite the RBNZ having only taken small baby steps in raising rates. The currency is not well positioned if the house price drop extends from here as it will take pressure of the RBNZ to hike any further. Back in May of this year, the market was looking for over 200 bps of policy tightening. Now, after 50 bps of actual hiking, expectations have dropped to about +60 bps for the year ahead. And NZDUSD trades at 0.7000+? Someone please tell us what we are missing here...
New Zealand posted very strong retail sales data for June, which, combined with a chunky risk rally in Asia squeezed fresh NZD shorts mercilessly, but by this writing, NZDUSD, among others, was right back to where it was trading yesterday as the risk aversion in the European session deflated the rally. Observers should also focus on the weak House Price Index number from New Zealand. By late 2007, New Zealand was involved in an housing bubble, which the RBNZ was fighting by consistently raising the rate to as high as 8.25%. House prices then corrected about 10% during the global financial crisis an took back most of that correction as the RBNZ cut rates to 2.50%. Now, it appears the market is rolling over again, despite the RBNZ having only taken small baby steps in raising rates. The currency is not well positioned if the house price drop extends from here as it will take pressure of the RBNZ to hike any further. Back in May of this year, the market was looking for over 200 bps of policy tightening. Now, after 50 bps of actual hiking, expectations have dropped to about +60 bps for the year ahead. And NZDUSD trades at 0.7000+? Someone please tell us what we are missing here...
AUDUSD
Worth noting that AUDUSD is trading at key levels here as it plays cat and mouse with the 200-day moving average. Rate spreads have not shifted much in favor of the trade heading lower, though there was significant overshoot in the pair's price relative to the widening in rate spreads, so we're reaching the neutral point here, perhaps. Risk remains to the downside for the pair as long as risk aversion remains the theme and Australia rates will offer far higher beta if we are to use rate spreads as a coincident indicator. The next round of important Aussie economic data doesn't arrive until the end of the month, so the Aussie will likely mostly trade off risk sentiment and hard commodity prices until then.
Worth noting that AUDUSD is trading at key levels here as it plays cat and mouse with the 200-day moving average. Rate spreads have not shifted much in favor of the trade heading lower, though there was significant overshoot in the pair's price relative to the widening in rate spreads, so we're reaching the neutral point here, perhaps. Risk remains to the downside for the pair as long as risk aversion remains the theme and Australia rates will offer far higher beta if we are to use rate spreads as a coincident indicator. The next round of important Aussie economic data doesn't arrive until the end of the month, so the Aussie will likely mostly trade off risk sentiment and hard commodity prices until then.
US Data
US Inflation data was almost perfectly in line, so no surprises there, but the Retail Sales data was very weak if we look at the ex Auto and Gas number, which was actually a negative -0.1% MoM despite the positive headline and less Autos data, suggesting that all of the rise was due to the increase in gasoline prices in July. This fits well with generally low confidence numbers and certainly doesn't provide any spark for a rally in risk, as bulls woul need to shield their eyes from the latest very ugly data points out of the US (and the divergent reaction in Europe to good growth news, which suggests fragile sentiment there)
US Inflation data was almost perfectly in line, so no surprises there, but the Retail Sales data was very weak if we look at the ex Auto and Gas number, which was actually a negative -0.1% MoM despite the positive headline and less Autos data, suggesting that all of the rise was due to the increase in gasoline prices in July. This fits well with generally low confidence numbers and certainly doesn't provide any spark for a rally in risk, as bulls woul need to shield their eyes from the latest very ugly data points out of the US (and the divergent reaction in Europe to good growth news, which suggests fragile sentiment there)
Looking ahead
The preliminary University of Michigan confidence level for August is out shortly. There is little to suggest anything shocking there. Later, the lone hawk of the voting FOMC members is out speaking about "too big to fail" banks. Next week will be potentially interesting for sterling with the CPI data release for July set for Tuesday. We will also get the latest round of US housing starts/building permits data after the last couple of month suggest the risk of a second dip in housing construction activity. The first regional manufacturing surveys are also set for release in the US after the July numbers offered mixed evidence about the degree to which the inventory restocking boom is fading (strong evidence of a decline earlier in the month until the very strong Chicago PMI shocker and relatively benign overall ISM were released later on). Other highlights include the Bank of England minutes and Canadian CPI data.
The preliminary University of Michigan confidence level for August is out shortly. There is little to suggest anything shocking there. Later, the lone hawk of the voting FOMC members is out speaking about "too big to fail" banks. Next week will be potentially interesting for sterling with the CPI data release for July set for Tuesday. We will also get the latest round of US housing starts/building permits data after the last couple of month suggest the risk of a second dip in housing construction activity. The first regional manufacturing surveys are also set for release in the US after the July numbers offered mixed evidence about the degree to which the inventory restocking boom is fading (strong evidence of a decline earlier in the month until the very strong Chicago PMI shocker and relatively benign overall ISM were released later on). Other highlights include the Bank of England minutes and Canadian CPI data.
Enjoy your Friday that 13th in the meantime, be careful out there as always, and have a great weekend.
Economic Data Highlights
- New Zealand Jul. REINZ Housing Price Index fell -1.2% MoM vs. +0.6% in Jun.
- New Zealand Jun. Retail Sales out at +0.9% MoM and ex-Auto at +1.5% vs. +0.5%/+0.5% expected, respectively
- New Zealand Jul. Non-resident Bond Holdings out at 62.8% vs. 64.1% in Jun.
- Germany Q2 GDP out at +2.2% QoQ and +3.7% YoY vs. +1.3%/+2.4% expected, respectively
- Switzerland Jul. Producer and Import Prices out at -0.5% MoM and +0.5% YoY vs. -0.2%/+0.8% expected, respectively
- Sweden Jun. Industrial Production rose +1.1% MoM vs. +0.8% expected
- EuroZone Jun. Trade Balance out at -1.6B vs. -0.7B expected and -2.7B in May
- Canada Jun. New Motor Vehicle Sales rose 2.5% MoM s. 2.0% expected
- US Jul. CPI out at +0.3% MoM and +1.2% YoY vs. +0.2%/+1.2% expected, respectively
- US Jul. CPI ex Food and Energy out at +0.1% MoM and +0.9% MoM, both as expected
- US Jul. Advance Retail Sales out at +0.4% MoM and +0.2% less Autos, vs. +0.5%/+0.3% expected, respectively
Upcoming Economic Calendar Highlights
- US Aug. Preliminary University of Michigan Confidence (1355)
- US Jun. Business Inventories (1400)
- US Fed's Hoenig to Speak (1530)
- UK Aug. Rightmove House Prices (Sun 2301)
- Japan Q2 GDP (2350)
- Australia Jul New Motor Vehicle Sales (0130)
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