August 6, 2019

Market Outlook

AUD drops against the US dollar following the release of Friday’s US non-farm payroll numbers. The numbers showed that the US economy is remaining strong. AUD/JPY falls to levels not seen since 2011 and the British Pound manages to recover from the depths of 1.21 versus the US dollar.  Global equities and interest rates have also fallen further with the US share markets experiencing the worse week for the year after both China and the US threatened further trade war action.

Week Ahead

Key economic releases from across the globe this week include: Australia: Trade Balance numbers, the Cash Rate and Rate Statement by the RBA, Home Loan figures and RBA assistant governor Bullock speaks on Thursday: US ISM Non-Manufacturing PMI, Unemployment Claims and Core PPI figures; UK GDP, Manufacturing Production, Trade Balance numbers and Industrial Production: Eurozone: German Services PMI, Factory Orders, Trade Balance figures and Industrial Production. The ECB Economic Bulletin will also feature on Thursday this week:

AUD

The Aussie dollar has opened this week under intense pressure against the US dollar. AUD versus the Greenback fell 1.6% for the week and the currency pair has fallen to levels only witnessed during the notorious flash crash. The market is now nearing lows experienced in March 2009. The AIG Australian Performance of Services Index didn’t help the Australian dollar either falling 8.3 points from the previous month to 43.9 in July, signaling the steepest month of contraction in the service sector since November 2014. However, slightly more positive news for the Aussie dollar came in the form of Services PMI numbers this morning which was revised higher to 52.3 in July from a preliminary estimate of 51.9. Output and new orders have risen at a slower pace, despite an increase in new export business. The economic docket this week includes Trade Balance numbers from Australia on Tuesday followed by the Cash Rate and Rate Statement by the RBA. On Wednesday Home Loan figures will be released with RBA assistant governor Bullock speaking on Thursday and RBA Gov Lowe Speaking on Friday.

USD

Despite last week’s US interest rate cut, the Fed’s caution towards further rate cuts disappointed markets. Another round of tariffs by US President Donald Trump on Friday also dampened risk sentiment as investors sought safer haven currencies following Mr. Trump’s tariff announcements.  The recent trade tariffs imposed by President Trump will now extend to nearly all Chinese goods. Data out of the States this week includes ISM Non-Manufacturing PMI, Unemployment Claims and Core PPI figures which will feature late into the evening AEST.

GBP

There were no real surprises as the Bank of England (BOE) held interest rates at 0.75% last week with a unanimous 9-0 vote. The surprise of the week came when the Liberal Democrat party handed newly elected Prime Minister Boris Johnson his first defeat as PM defeating the Conservative party in a by-election last week. This leaves Prime Minister Johnson with just a single seat majority in parliament and is likely to cause issues for the PM to get Brexit through parliament. This in turn could result in a snap general election, something the Pound could do without given the recent pressure it has faced. Sterling is already frail at present and has fallen over 2% against the US dollar testing the $1.21 territory. Top tier data out of the UK this week includes Services PMI on Monday evening AEST and then a host of data on Friday in the form of monthly GDP, Manufacturing Production, Trade Balance numbers and Industrial Production. All have the potential to move the already sensitive British Pound.

EUR

The Aussie dollar was generally weaker against the Euro down 2% in trading last week and recent data out of Europe has shown the Eurozone Services PMI declined to 53.3 in July from 53.6 in the previous month and fell in line with market expectations. Pockets of Europe seem to be recovering whilst others are still struggling. Switzerland’s retail sales unexpectedly jumped 0.7% year-on-year in June, following a downwardly revised 1.1% drop in the previous month and missing the market expectation of a 0.6% drop. This was the first yearly increase in retail sales since October 2018. Meanwhile, Spain’s services PMI decreased to 52.9 in July from June’s three-month high of 53.6 missing market expectations. Data this week from Europe will see big data from Germany in the form of Services PMI, Factory Orders, Trade Balance figures and Industrial Production. The ECB Economic Bulletin will also feature on Thursday this week.

Rest of the World

The Caixin Services PMI in China fell unexpectedly this morning to 51.6 in July from 52.0 in the previous month of June. This missed market expectations and was the weakest pace of expansion since February. This figure usually has a bearing on the Australian dollar given that China remains one of Australia’s largest trade partners. The Chinese Yuan has also continued to weaken to its lowest level against the US Dollar in more than a decade. China seems fairly content to allow their currency to fall in the face of growing trade war tensions. President Trump has criticized China of manipulating their currency to gain international advantage. This latest exchange could fuel what is already a raging fire and will undoubtedly have an impact on wider currency market crosses.

Event Wrap

Monday

AUD – AIG Services Index

NZD – ANZ Commodity Prices

CNY – Caixin Services PMI

EUR – German Final Services PMI

GBP – Services PMI

CAD – Bank Holiday

USD – Final Services PMI

Tuesday

AUD – Trade Balance

AUD – Cash Rate

AUD – RBA Rate Statement

NZD – Unemployment Rate

NZD – Inflation Expectations

EUR – German Factory Order

Wednesday

AUD – Home Loans m/m

NZD – Inflation Expectations

NZD – RBNZ Monetary Policy Statement

NZD – RBNZ Rate Statement

NZD – Official Cash Rate

EUR – German Industrial Production

USD – FOMC Member Bullard Speaks

Thursday

AUD – RBA Assist Gov Bullock Speaks

GBP – RICS House Price Balance

JPY – Current Account

CNY – Trade Balance

CNY – New Loans

USD – Unemployment Claims

Friday

AUD – RBA Gov Lowe Speaks

AUD – RBA Monetary Policy Statement

JPY – Prelim GDP

CNY – CPI

EUR – German Trade Balance

GBP –GDP

GBP – Manufacturing Production

GBP – Trade Balance

GBP – Construction Output

GBP – Industrial Production m/m

CAD – Employment Change

CAD – Unemployment Rate

USD – Core PPI