What You Need to Know In Forex For August 15

Australia/NZ:

• In New Zealand, the economic calendar was vacant. The only data of note originated from the housing industry, where s/adjusted median house prices came at +6.6 pct in July y/y , while s/adjusted median house prices stood at +0.2 pct in July against previous month, according to REINZ. Meanwhile, the NZ Finance Minister Robertson, sounded optimistic by saying that the NZ economy has strong fundamentals, although that seems to misrepresent the actual state of affairs in the country, where leading indicators have deteriorated and even the RBNZ left us with the impression that rate hikes are a 2020 story. The Kiwi remains unloved, near trend lows as the tensions in Turkey and EMs continue to be the main risk.
• In Australia, the headline July business confidence came slightly upbeat at 7 vs 6, while conditions stood at 12 vs 15. In terms of the sub-components, NAB stated that business sector looks relatively healthy, noting that “we expect to see enough employment growth to see a gradual reduction in spare capacity, which should in time see a rise in wage growth, and a more general lift in inflation.” One can get further insights by visiting the NAB Morning Call edition, where NAB Economist elaborates further (mid way through the conversation).
• In Australia, we also saw the Australia weekly consumer sentiment come largely unchanged at 118.2 vs 118.9. The monthly reading on consumer confidence by Westpac is due later this week. However, for the next 24h, what really matters will be the Australian wage price index (today) ahead of the Aus employment figures. In the latest RBA SoMP, the Central Bank sent an optimistic message on labour conditions, expecting the unemployment rate to adjust lower around the 5% heading into 2019. The Australian Dollar, mainly weighed by broad-based USD buying, continues to trade at oversold levels sub 7250.

China:

• The latest data from China disappointed the markets. The July data industrial production series stood at 6% y/y vs 6.3% exp, retail sales at 8.8% y/y vs 9.1% exp, prior was 6.0%, while fixed asset investment came at 5.5% vs % exp. Essentially, we had misses across the board, which should partly explain the weakness in the Aussie.
• China stats bureau came out to try to somehow justify the recent weakness in the Yuan by saying that it has been affected by the Fed rate hike cycle, which ironically follows the misses in Chinese data, further adding that there is a need to assess impact on China’s economy from trade frictions with US
• A look at the Chinese markets in the last 24h portrays a fairly stable picture. The USD/CNY trades just a tad below 6.9 after the recently higher fixes by the PBOC. However, this is partly due to the strength in the USD, as when compared against a basket of G10 currencies, the Yuan traded higher across the board. As per the Shanghai Composite, it’s been holding up pretty steady even since the bottom seen on Aug 7th.

Japan:

• The only data of significant out of Japan in the last 24h was the June final industrial production, which came at -1.8% vs -2.1% m/m, with the yearly reading at -0.9% vs -1.2% y/y prelim. The Japanese Yen traded mixed, giving back recent gains against the USD, CAD, while still appreciating vs the AUD, NZD, EUR.

Europe:

• It’s worth noting that investors should factor in the prevailing low volume activity from Aug, but also the fact that today we see European public holidays in France and Italy.
• In terms of data, it was a data-rich day on Tuesday. The German August ZEW survey of current conditions stood at 72.6 vs 72.1 exp, while the German ZEW economic sentiment, which is the reading that really matters, came upbeat at -13.7 vs -21.3 exp. It appears as though the pick up in investors’ confidence reflects the easing of trade retaliation between the US and the EU. On the flip side, the prospects of growth for the German economy remain sub-par according to the report.
• The German Q2 preliminary GDP came at +0.5% vs +0.4% q/q exp, the seasonally adj GDP came at +2.0% vs +2.1% y/y exp, with the non-seasonally adjusted at +2.3% vs +2.5% y/y exp. Overall, it should be see as a worrying sign that activity at the engine of Europe is deteriorating. The ECB will keep a close eye.
• The Eurozone Q2 GDP came at +0.4% vs +0.3% q/q prior, while the yearly reading was +2.2% vs +2.1% y/y prior. Just as in the case of the EU industrial data, this reading is backward-looking and not that relevant for the valuation of the Euro ahead. Investors are now mainly focus on data that factors in Q3 conditions.
• The least relevant data was the Eurozone June industrial production, which while disappointing on a monthly basis at -0.7% vs -0.4% m/m exp, the WDA from a yearly standpoint came upbeat at +2.5% vs +2.4% y/y exp , which adds to the positive revisions seen.
• As per the situation in Turkey, Erdogan continues his own brinkmanship game not accepting any external help as the economy remains on the brink of implosion given the massive depreciation in the Turkish Lira and the amount of exposure the country has to foreign-denominated debt.
• Erdogan said the country is facing an explicit economic attack, adding that they are taking necessary measures regarding the economy. Anyway you slide the headlines, which were plentiful yet lacking substance and concrete steps to be taken, you have the impression that the politician remains a leader in stubborn disbelief.
• The latest speech by Erdogan, if anything, justifies to see a further weakening of the Turkish Lira, which as a result, may see contagion and spillover effects into the wider market spectrum, hence why the outlook remains positive to see the US Dollar benefiting in such a fractious environment.
• Meanwhile, the Turkish Finance Minister said that Turkey is set to remain as part of free market rules, noting that no significant outflows from bank deposits were seen (what else would you expect a politician to say?). He kept harpin on reassuring statements, noting that Turkish banks’ capital ratios way above threshold.

UK:

• The UK June average weekly earnings, from a quarterly perspective, came at +2.4% vs +2.5% exp y/y, with earnings ex-bonus at +2.7% vs +2.7% exp, while the ILO unemployment rate was 4.0% vs 4.2% exp. The employment change stood at 42k vs 93k exp. Overall, the data was a mixed bag as we saw positive revisions and the lowest unemployment rate in more than 40y, however the wage inflation is well capped. The report was by no means strong enough to result on second thoughts by the Bank of England on its cautious stance.
• One of the inputs obtained on Tuesday, which should have a more significant impact towards a fragile Sterling is the fact that UK foreign secretary Jeremy Hunt said that the risk of a no-deal Brexit has been increasing, noting that it is important to make sure we don’t end up with a no-deal outcome by accident.
• Later today, another major mover for the Sterling is due, as the UK CPI will be released. Expectations are for a slight increase y/y to 2.5% vs 2.4% prior. We also see the core CPI, PPI, RPI.

US/Canada:

• National Security Adviser Jon Bolton convened with Turkey’s ambassador in the US to mediate and hopefully find a positive resolution in the detention of pastor Andrew Brunson. They also touched on what can be done to address the current diplomatic impasse between the US and Turkey and improve trade relations. The view by the market is that if the US and Turkey can ease the tension for an ultimate release of the American, the dramatic fall in the Turkish Lira might be contained as confidence improves as bilateral actions are taken.
• According to the latest US July NFIB small business optimism index, we saw a slight uptick towards 107.9 vs 106.8 exp. Overall, the sector and business conditions are the highest since the 1980s.
• The July US import prices came flat, in line with estimates, while export prices saw a significant slide to -0.5% vs +0.2% exp, weighed by agricultural products such as soybean, corn or nuts.
• On Wednesday, a slew of economic indicators will be published, including the US retail sales, empire state manuf, non-farm productivity, capacity utilization and ind prod. The data that will weigh the most on the US Dollar will be the US CPI and there wide consensus of a deterioration in July.
• In Canada, the July Teranet house price index came at +1.8% vs +2.9% y/y prior, which is underwhelming. However, prices were up 0.8% m/m vs +0.9% prior. According to Teranet: “The published (non-seasonally-adjusted) Toronto index rose for a fourth straight month in July. In contrast, the seasonally adjusted index would have declined for a fourth straight month.”