E Markets: Steady As She Goes

Avoid sudden change – good advice for sailors and traders today. That is the lesson for the day as the summer lull continues to bring out the bulls. Risk on, Dollar off. The rally up in China shares notable along with CNY relative stability. Even Turkey got some relief. Central banks and trade remain front and center today –

  • RBA on hold noting China weakness and US trade uncertainty. The central bank hinted that CPI would be lower leaving the SOMP Friday in play along with tomorrow’s RBA Lowe speech.
  • New Zealand shadow RBNZ board says rates should stay on hold as there is no urgency despite longer term seeing globally higher rates and inflation.AUD/NZD shot higher through 1.10 resistance.  
  • BOJ still focus after Reuters article says plan to raise rates this year was scuttled by market turbulence and lower CPI. 
  • Turkey sees TRY bounces 1.5% early to 5.1720 from 5.4222 record lows, off 4.7% yesterday, with relief trade following after a Turkish CNN broadcaster said that a "delegation of Turkish officials are to go to the U.S. in 2 days" after the Two nations "reached pre-agreement on certain issues," citing diplomatic sources.

The economic news remained negative for Europe with German industrial production missing and adding to fears of a slowdown there, but the EUR is bid. For trading this market – many are back to watching the USD as the overall risk barometer.Whether that works or not remains to be seen.

Question for the DayDoes the Fed US Senior Loan Officer Survey matter? The growth of the US economy remains linked to the consumer and to credit. This report was steady as she goes – 5% credit growth continues. FOMC tightening is still seen as gradual normalization and the reports from yesterday suggest good times continue for corporates, but perhaps not for the consumer. Banks have eased standards according to the report yesterday, 17% have cut terms and standards for larger firms and 10% for smaller ones. Consumers see 6.5% tighter standards on credit cards but autos and real estate is unchanged.

What Happened?

  • RBA leaves cash rate unchanged at 1.5% - as expected – leaves forecasts economy unchanged, notes global outlook uncertainty due to US trade. The RBA also acknowledged that growth in China has slowed a little. The RBA said inflation is likely to be higher in 2019 and 2020 but lowered outlook for 2018 inflation to 1.75% from "bit above 2%" because of "once-off" declines in some administered prices for 3Q. The RBA maintained the outlook for GDP growth in 2018 and 2019, citing support from non-mining business investment and higher levels of public infrastructure investment.
  • China July FX Reserves up $5.82bn to $3.118trn from $3.112trn – better than -$12bn expected. This is the second monthly gain. The reserve gain reflects valuation effects of holding foreign bonds. The USD index was off 0.2% in July. The value of China’s gold reserves fell to $72.324 billion at the end of July, from $74.071 billion at the end of June.
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