DXY sank last night. EUR and CNY bounced:
AUD flamed out against DMs:
EMs were mixed:
Gold failed to fire:
Oil fell:
Base metals struggled:
Big miners did better:
EM stocks rallied:
Junk bonds too:
Treasuries were sold and the curve flattened:
Bunds likewise:
Stocks took off:
Westpac has the wrap:
Economic Wrap
US consumer prices rose less than expected in August, the headline gauge up 0.2% (vs 0.3% expected). Core inflation pressure also eased, the ex-food and energy index posting a sub-consensus 0.1% increase, taking the annual rate down a couple of pegs to 2.2% from 2.4%. The benign CPI follows a soft PPI, but despite the moderation inflation pressures are still building. Much of the downside surprise in the August CPI came from one-time factors such as apparel prices which posted their largest decline in seventy years. Beyond that a tightening labour market and tariffs point to ongoing rising inflation pressures.
Both ECB and BoE left policy unchanged. ECB affirmed its intent to halt its Asset Purchasing Programme at the end of 2018, but to not alter policy rates at least until the summer of 2019. Both ECB and BoE assessments of their economies highlighted sound, if softening, current conditions and solid labour conditions. ECB Staff Economic Projections lowered Eurozone growth in 2018 and 2019 by -0.1%. Although headline Eurozone inflation was left unchanged, core Eurozone HICP was lowered by -0.1% in 2019 and 2020 (due to the lower growth). Draghi downplayed the minor pullbacks in their forecasts and provided a typically non-committal stance on their future intentions beyond their stated policy measures.
Turkey’s central bank raised its key repo rate to 24.0% from 17.75% (higher than the expected 22.0%), in defiance of earlier comments from President Erdogan warning against a hike (Erdogan called for cuts, describing interest rates as the “mother and father of all evils”).
Event Risk
NZ: Manufacturing PMI has fallen sharply over the past few months, although it’s still in expansionary territory (just).
China: Aug economic data release is expected to show retail sales maintaining a 9.3%yr ytd pace, industrial production edging down to 6.5% from 6.6%, while fixed asset investment rises to 5.6% from 5.5% with the worst of investment deceleration likely behind us.
US: Aug retail sales are seen to post another solid month, rising 0.4% after Jul’s 0.5% gain with core sales up 0.5% following +0.6%. Aug industrial production is anticipated to increase by 0.4%, continuing the moderate uptrend. Sep University of Michigan consumer sentiment is seen to hold at a positive level of 96.6. Fedspeak involves Evans on the economy and Rosengren on his co-authored paper “Should the Fed Regularly Evaluate its Monetary Policy Framework?”.
The one/two punch of a confident ECB and softish US inflation did the damage to the USD. Still, even with the softer USD and stronger AUD, the relative reactions in the Australian and US equities markets left the two at a record performance dislocation even in local currency:
The Trump boom rolls on versus Australia’s profitless Botox Boom.
