- RBA kept rates unchanged at 3.5% as exp.
- Australia’s terms of trade peaked nearly a year ago, though they remain historically high.
- In Australia, most indicators suggest growth close to trend overall.
- The Bank’s assessment of the outlook for inflation is unchanged
- The exchange rate, however, has remained high, despite the observed decline in the terms of trade and the weaker global outlook.
Fed Senior Loan Officer Survey was quite positive. 52.5% of banks reported stronger demand for prime loans, up from 30.2% in 2Q. C&( loan demand also improved, while banks on balance eased lending standards and spreads Overseas:
- Swiss CPI improved to -0.7% YoY in July vs -0.8% exp and -1.1% prev
- Wed: Japan Eco Watchers Survey, BoE Inflation report, US Labor Costs, Korea Central Bank, Australia Employment, China CPI
- Thurs: BoJ, China IP, Retail Sales, US Jobless Claims,
- Fri: UK PPI, Canada Employment
- Mon: RICS House Prices Balance, BoJ Minutes, Australia NAB Business Confidence
- Tues: UK CPI, EU 2Q GDP, German Zew, US PPI, Retail Sales
Commentary & Links:
Looking back on my outlook from a month and a half ago, I would judge that while most of my expectations were fulfilled, the key miss was the rally in risk assets. I had expected range bound or weaker price action as a result of the weak data, but it appears that there was significant inflow into risk assets despite that being the case.
After taking some time off, (which helped resetting expectations and biases somewhat) the market tone appears to remain quite positive, while the hurdle for additional positive surprises appears to be very low. The biggest near term risk appears to be the fiscal cliff in the US, but as is typical of risks that are widely telegraphed in advance, the actual market impact is likely to be much less than feared. There is the possibility that any resolution of the fiscal issue could be positive for growth simply because uncertainty is removed. And the beta of risk assets to Europe appears to have fallen sharply as a result of the implied Draghi ‘put.’
On the other hand, there are a number of possible catalysts for a continuation of this move higher for risk. Most importantly, the data has started to stabilize. The negative impact of seasonality and inventory effects on the data is likely near an end. Monetary trends are starting to improve. Sentiment remains very very negative. And China could start a new stimulus package once the leadership transition becomes clear.
Markets are short term a bit overbought, but perhaps dips should be faded.