Housing starts in July came in at 1496k for a 22.6% m/m rise while building permits came in at 1495k for a rise of 18.8% m/m. Low rates environment suits well for the housing market which is brimming with activity. Initial jobless claims for the week ending August 15 came at 1106k, thus again posting over 1 million claims after the drop from previous week. Continuing claims have dropped below 15 million coming in at 14844k.
Minutes from July’s FOMC policy meeting showed that the central bank is in no hurry to expand its stimulus program. They are opting for the forward guidance and expansion of QE if needed to keep the borrowing costs low. Talks about yield curve control have been ruled out. The yield curve control would only provide modest benefits to the current environment, as assessed by the board members. Gold reclaimed the $2000 level when the week started but after the FOMC minutes, take profit on gold occurred and it dropped almost $100.
This week we will have housing data, durable goods data, second estimate of Q2 GDP as well as PCE inflation and personal spending data.
Important news for USD:
Preliminary August manufacturing PMI slipped to 51.7 vs 51.8 the previous month while the big drop was seen in services PMI which came in at 50.1 vs 54.7 the previous month. A drop was caused by a fall in demand due to travel restrictions. Composite was dragged down to 51.6 from 54.9 the previous month. French readings have all disappointed with manufacturing dropping below 50 level. Manufacturing in Germany improved but services were battered. The readings weighed heavily on EUR, pushing it down across the markets as concerns surrounding exhaustion of economic recovery mount. Final inflation in July came in at 0.4% y/y with core at 1.2% y/y. Both readings came in same as preliminary reported.
This week we will have business climate data from Germany and sentiment data from EU.
Important news for EUR:
Inflation in July surprised to the upside coming in at 1% y/y vs 0.6% y/y as expected. Even more impressive was the jump in the core CPI which came in at 1.8% y/y vs 1.2% y/y as expected. ONS stated that the largest rise came from recreation and culture. As lockdown ended people were hurling outside. The rising prices in clothing, petrol, household goods also contributed to the rise in inflation.
Retail sales for the month of July came in at 3.6% m/m vs 2% m/m as expected and are now 3% above the pre-pandemic levels in February of 2020 while online retail sales are up 50.4% from pre-pandemic period. Preliminary August PMI data heavily beat the expectations. Manufacturing came in at 55.3 vs 53.3 the previous month while services rose to staggering 60.1 level from 56.5 the previous month. Composite capped the good data coming in at 60.3 vs 57 the previous month. The “Eat out to help out” scheme was introduced in August and it helped tremendously with rise in services reading. The scheme allows 50% reduction in food bill in restaurants from Monday through Wednesday.
RBA meeting minutes showed that board members currently do not see the need to change the course of monetary policy, but that they are ready to intervene if the need arises. Monetary policy will be held accommodative for as long as necessary. The economic downturn was not as severe as expected and board members are grateful that the government decided to extend various income support measures.
Talks about negative rates coming in from RBNZ in Q2 of 2021 are intensifying. RBNZ members have stated at their last meeting that they would like to see a weaker NZD. The markets are pricing negative rates for April 2021 but if the virus continues hurting the economy more the markets will move expectations for a rate cut closer to the start of 2021. GDT price auction came in at -1.7% and price index is now down more than 7% since the beginning of July. This drop in dairy prices, largest export for New Zealand, will hurt trade balance and in turn GDP.
This week we will have Q2 consumption data and July trade balance data.
Important news for NZD:
Inflation in July fell to 0.1% y/y vs 0.6% y/y as expected on the back of rising CAD and issues in travel sector. Core measures show median reading staying at 1.9% y/y for the third straight month while common and trimmed both slipped to 1.3% y/y and 1.7% y/y respectively. Retails sales for the month of June came in at 23.7% m/m vs 24.5% m/m as expected. The reading brought retail sales up 1.3% from pre-pandemic levels in February as more regions reopened. Sales were up in all sub sectors, with growth primarily led by motor vehicle and parts dealers, as well as clothing and clothing accessories stores. Statistics Canada is providing an advanced estimate of July sales of 0.7%.
This week we will have Q2 GDP data.
Important news for CAD:
Preliminary Q2 GDP reading showed the pain circulating through Japanese economy. It came at -7.8% q/q vs -7.5% q/q, even worse than very low expectations! Annualized decline was -27.8%. Private consumption fell -8.2% q/q while business spending fell -1.5% q/q. Business spending is the only bright spot in the reading, although it is negative, it came better than -4% as was expected. The reading now shows three consecutive quarters of negative GDP, indicating prolonged recession. Since Japan is net exporter the drop in the global demand due to virus outbreak wreaked havoc on the economy.
Trade balance in July came in at JPY11.6bn, beating expectations and turning back into surplus after three months of deficits. However, surplus was achieved with exports dropping -19.2% y/y while imports plunged -22.3% y/y. Report showed the first increase in exports to China this year. Core machinery orders for June came in at -7.6% m/m and -22.5% y/y. After brief positive reading the previous month machinery orders, proxy for CAPEX, return into negative which will raise concerns about business investment in Q3 as well as Q4.
National inflation for July improved slightly to 0.3% y/y but ex-fresh food and ex-fresh food, energy categories stayed at their previous levels of 0% y/y and 0.4% y/y respectively. Measures are miles away from BOJ’s 2% target level. Preliminary manufacturing PMI for the month of August improved to 46.6 but services dropped to 45 from 45.4 the previous month leaving composite at 44.9 level.
This week we will have Tokyo area inflation data for the month of August.
Important news for JPY:
Total sight deposits for the week ending August 14 came in at CHF698.6bn vs CHF695.8bn the previous week. We can expect the CHF700bn level to be reached within a week or two. Trade balance data in July improved to CHF3.38bn on the back of exports rising 2.3% m/m and imports rising 1.1% m/m. This is an encouraging sign for the start of Q3.
This week we will have Q2 GDP data.
Important news for CHF:
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