RBA Minutes, German GDP, UK Inflation and U.S Retail Sales. It’s All Go

The Asian session continued to see Asian equities bounce back through the session, with macroeconomic data out of Japan continuing to impress, June industrial production rising by 2.2%, whilst the biggest focus was on this morning’s RBA meeting minutes, with the markets looking to get a sense of whether the stronger AUD would continue to peg back any hopes of a near-term shift in monetary policy.

RBA Meeting Minutes

In making the decision, members acknowledged that global economic conditions had continued to improve, citing China and the Eurozone in particular, with demand from the Chinese industrial sector having been stronger than anticipated, driving commodity prices higher.

Members also noted that labour market conditions had continued to tighten in a number of economies, whilst inflation remained subdued.

Domestically members observed that the outlook remained unchanged, with GDP growth forecasted to increase by around 3%, supported by the current interest rate environment and that business conditions had improved further and faster growth in non-mining business investment was expected.

Inflation was still forecasted to increase gradually as the economy strengthened, whilst employment growth had been stronger in recent months, with forward indicators pointing to a continued gradual decline in spare capacity. Wage growth remained low however, but was expected to increase as labour market conditions improved, which would support rising household disposable incomes and consumption growth.

Unsurprisingly, the RBA did continue to raise concerns over an appreciating AUD and the likely negative impact on both inflation and the Australian economy, while also noting that ongoing low wage growth and high household debt levels could result in lower than forecasted consumption growth. Household credit growth continued to outpace household income growth according to the RBA minutes.

Perhaps the most negative element of the minutes were concerns raised over the housing sector, with housing sector activity forecasted to deteriorate, which would weigh heavily on labour market conditions and ultimately consumption growth.

The AUD moved from $0.78594 to $0.78730 upon release of the minutes, the gains coming off a more optimistic RBA, though there were no hints of a shift in policy, with the markets expecting the RBA to be in a holding pattern through the next 12-months.

The Day Ahead

Going into the European session, it’s not for the faint hearted today, with UK July inflation figures scheduled for release this morning. All bets are currently off on a move by the BoE before the 3^rd quarter of next year and today’s numbers will certainly give the pound some direction, any weaker than forecasted inflation data expected to add further pressure on the Pound, which gave up $1.30 levels at the start of the week.

With no material stats out of the Eurozone through rest of the day, focus will then shift across the Pond, with U.S July retail sales, business inventories, August’s New York Empire State Manufacturing Index and July import and export price indexes scheduled for release. The key driver will be the retail sales figures, which have been woeful of late, with forecasts ever optimistic, pointing to a rebound last month.

At the time of the report, the Dollar Index had bounced 0.24% to 93.635, with the EUR slumping 0.31% to $1.17435, disappointing 1^st estimate GDP numbers for the 2^nd quarter out of Germany dragging down the EUR ahead of the European open. There have been high expectations on the Eurozone’s economic growth numbers for the 2^nd quarter and for the quarters ahead and today’s figures out of Germany will be food for thought, adding to those doubting any move by the ECB in the months ahead, with the stronger EUR also a factor to consider.

Strong retail sales figures out of the U.S this evening will reignite hopes of a FED rate hike by year end, the markets continuing to flip flop on the data, with the Dollar likely to find support through to the data, off the back of forecasts and a weaker EUR, with the Pound in the spotlight early in the day. Disappointing UK inflation figures could well see the pound slide to sub-$1.29 levels before the close, with the Pound down 0.03% at $1.29605 at the time of the report.