The US dollar’s weakness continued as it came under pressure from the Bank of Japan’s decision to do little and then much weaker than expected US Q2 GDP which printed just 1.2%. That’s driven the Aussie dollar up near 76 cents this morning.
But the weaker than expected GDP didn’t hurt stocks with the S&P still sitting near all time highs. That’s helped the SPI 200 push higher with the September SPI up 17 points suggesting another good day for local traders.
Oil may have found a short-term bottom after WTI bounced off $40.50ish to close at $41.60. Gold is at $1350 and ounce and copper is hanging tough at $2.22 a pound.
Here’s the scoreboard (7.21am):
- Dow: 18432 -24 (-0.13%)
- S&P 500: 2173 +3 (+0.16%)
- SPI 200 Futures (September): 5,536, +17 (+0.3%)
- AUDUSD: 0.7595 +0.0093 (+1.2%)
The top stories
1. The market still expects a rate cut tomorrow – but this economist explains why rate cuts have diminished returns. Last week’s Devil’s and Details podcast was a cracker, looking at inflation and the RBA, amongst other things. ANZ senior economist Joanne Masters made a great case for why the RBA should cut rates tomorrow.
But she also explains why interest rate cuts are becoming less effective in Australia. It’s a fair enough reason for the RBA to hold fire. In the end though, her point that the risks of a policy mistake from an RBA rate cut are negligible could be the key to whether the bank decides to cut or not at 2.30pm tomorrow.
2. The Aussie dollar at 76 cents probably tips the RBA a little closer to easing – but a cut may not push the Aussie lower. The Aussie is sitting at 0.7587 this morning after post-GDP US dollar weakness on Friday. Morgan Stanley says that weakness will continue and the US dollar is set to fall 5% in coming months. Bloomberg reports Hans Redeker, Morgan Stanley’s chief global currency strategist said in a note last week that weak US demand would sap the dollar’s strength.
For the moment it is likely the Aussie dollar bulls are a little restrained by the RBA meeting tomorrow given the chances are high that the RBA will cut rates. But there is no guarantee the Aussie goes down unless when the RBA cuts, it promises more cuts. That’s because Australian rates are still relatively high and the US dollar is under pressure in its own right. I’d be surprised with such dovish forward guidance from the RBA. But worries of a run toward 78 cents could be the straw that tips the RBA.
3. Let’s talk about that US GDP print – it was weak but not that weak. The release of much weaker than expected US second quarter GDP data was a surprise. The 1.2% print was all about inventories and masked the fact the data showed personal consumption rose 4.2%, while elsewhere data showed wages growth was still strong.
I’m not one to deconstruct GDP data but I think it is worth noting that the inventory rundown seems incongruous in this context and may not change the Fed outlook which appears to be for at least one hike this year. The alternate view is that summarised by Tina Wadhwa, who reports it’s time to get worried about the US economy — according to the people who know best.
4. This could be the most bullish news for global stocks you’ll read. This is a most despised stock market rally. As the S&P 500 continues to hover near all-time highs there are plenty of investors and analysts who say sell everything. That’s something that DoubleLine Capital’s Jeff Gundlach said Friday.
Of course he might be right but Reuters reported on Friday that its monthly poll of 44 fund managers and chief investment officers in the United States, Europe, Britain and Japan “showed equity holdings at 42.9 percent in investors’ global balanced portfolios, down from 45.6 percent in June – the lowest in at least five years. At the same time, they raised the weighting of bonds to 40.9 percent from 38.1 percent in June, also the highest level in at least five years”.
Still plenty of headwinds for stocks but one of them is not over-participation from investors in this rally.
5. The yen might be surging but people just won’t give up on Bank of Japan helicopter money. The Bank of Japan seemed to deliver the least possible change in monetary policy with its decision on Friday. That set the yen surging and at the end of the days trade in New York on Friday, USDJPY had fallen 3% to close at 102.
But it seems the yen bears aren’t done yet. Reuters reported over the weekend that the coincident announcement by the BoJ that it is going to undertake a “comprehensive assessment” of monetary policy has some folks thinking the BoJ has signaled the way to the eventual implementation of helicopter money in Japan.
Daiju Aoki, economist at UBS Securities said “the comprehensive review might be the first step toward further collaboration with the government, hinting at helicopter money…The government could issue 50-year bonds, and if the BOJ makes a commitment to hold them for a very long time, that would be like helicopter money.”
This belief there is more to come is something Business Insider’s Elena Holodny also picked up on in her piece Japan just ‘offered markets a little appetizer’
6. Here’s all the key data and events for the week ahead. RBA, Bank of England, Chinese PMI and trade data, the wash up from the Bank of Japan’s decision, and of course non-farm payrolls to round out the week.
Here’s my look at all the key data and events this week, with thanks to the NAB’s market economics team.
Key data for the past 24 hours (with thanks to BNZ markets)
NZ: Building permits (m/m%), Jun: 16.3 vs. -0.9 prev.
UK: Gfk consumer confidence, Jul: -12 vs -8 exp.
JP: CPI ex food and energy (y/y%), Jul: 0.4 vs. 0.5 exp.
JP: Industrial production (y/y%), Jun P: -1.9 vs. -2.9 exp.
JP: Retail sales, (y/y%), Jun: -1.4 vs. -1.2 exp.
NZ: ANZ activity outlook, Jul: 31.4 vs. 35.1 prev.
JP: Bank of Japan policy rate (%): -0.10 vs. -0.15 exp.
EZ: Unemployment rate (%), Jun: 10.1 vs. 10.1 exp.
EZ: GDP (s.a., q/q%), Q2 A: 0.3 vs. 0.3 exp.
US: Employment cost index (q/q%), Q2: 0.6 vs. 0.6 exp.
US: GDP (annualised, q/q%): Q2 A: 1.2 vs. 2.5 exp.
US: Core PCE (annualised, q/q%): Q2 A: 1.7 vs. 1.7 exp.
US: Chicago PMI, Jul: 55.8 vs. 54.0 exp.
US: Univ. of Michigan sentiment, Jul F: 90.0 vs. 90.2 exp.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Resmed (RMD: ASX)
Resmed (RMD: ASX)
Shareholders were rewarded by a big market response to a solid quarterly profit report from Resmed. The stock rallied 7% on Friday and in doing so confirmed a decisive break out of the trend channel that has confined it since May last year.
Resmed is an international company that develops, manufactures and distributes equipment for sleep disorders. The market has long liked the themes of Resmed’s leverage to first world health problems and to the developing middle class in many emerging economies. The most recent result appears to have given investors a bit more e comfort about the stock. It achieved double digit revenue growth in constant currency terms and managed to maintain profit margins.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC