Markets mixed in Asia as investors await today’s US inflation data
While weakness in technology stocks weighed on the Nasdaq, the S&P500 inched forward 0.1% on a quiet day for economic news – sufficient to eke out a new record high. While stocks had been a little firmer earlier in the session, USTs were a little heavy ahead of today’s key CPI report with the 10Y yield closing up 3bps at 1.35% – the highest close since 14 July. In turn, the lift in UST yields gave the greenback a modest boost with DXY hitting its highest levels this year.
Given the lack of clear direction from the US and a very light day for local data and news it has been a somewhat mixed session in the Asia-Pacific region. The best performer has been Japan, with a near 1% lift in the TOPIX taking it to levels last seen in mid-July, with investors perhaps taking some heart from the greater-than-expected resilience seen in yesterday’s Economy Watchers survey. Elsewhere, stocks are broadly flat in Hong Kong, but are trading a little lower in mainland China, and more noticeably so in South Korea, Singapore and Taiwan. Aussie stocks have firmed a little – and AGCB’s have tracked UST yields higher – even after today’s Westpac consumer confidence survey mimicked the decline in sentiment reported in the business sector yesterday.
Japan’s broad money growth slows in July as base effects wane
As with yesterday’s bank lending data, today’s release of the monetary aggregates for July pointed to slower growth as the base effects associated with the first wave of the pandemic continued to wear off. According to the BoJ, M3 expanded at an annualised pace of just 3.2% during the month, compared with almost 10% in July last year – the latter reflecting the tail end of the BoJ’s response to the financial stress seen at the onset of the pandemic. As a result, annual growth in M3 slowed to a 14-month low of 4.6%Y/Y from 5.1%Y/Y previously, which was in line with market expectations. Similarly, M2 grew at an annualised pace of just 1.3% in July, and so annual growth slowed to 5.2%Y/Y from 5.9%Y/Y previously.
German CPI confirmed at 13-year high; Italian CPI to remain weak
Another relatively quiet day for European economic releases brought the final German CPI estimate for July. And this confirmed that the headline HICP inflation rate jumped 1ppt to 3.1%Y/Y in July, a thirteen-year high, while the national measure saw headline inflation surge 1.5ppts to 3.8%Y/Y, the highest since 1993. Of course, this upward adjustment principally reflects base effects from last July’s temporary VAT cut – for example, despite falling on the month (2.4%M/M) clothing prices surged 5%Y/Y. But there was also a further uptrend in energy inflation this month too, with prices up 1.3%M/M to be 11.6% higher than a year earlier. And certain seasonal effects were at play too, with package holiday prices up 22.1%M/M, while the continued reopening of the services sector also pushed prices higher – restaurant and hotel costs were up 3.3%Y/Y the most since 2007. Overall, services inflation rose 0.6ppt to 2.2%Y/Y, with goods inflation up 2.3ppts to 5.4%Y/Y. So, even when excluding energy and food, core inflation (on the national measure) jumped 1ppt to 2.7%Y/Y.
In contrast, final Italian CPI figures are expected to confirm that HICP inflation fell 0.4ppt to 0.9%Y/Y, also partly due to temporary factors as summer discounting was again delayed following recent restrictions.
Attention turns back to inflation in the US today with the July CPI report the key focus
The focus in the US today will turn back to inflation, with the CPI report for July the clear highlight on an otherwise quiet global diary. Daiwa America’s Mike Moran expects another solid 0.4%M/M lift in core prices, so that annual core inflation will probably only ease slightly from the 4.5%Y/Y pace in June. Higher prices for energy and food will likely lead to a 0.5%M/M lift in the headline index, so that annual headline eases just a notch to 5.3%Y/Y. Given the run of very large upside surprises in recent months, the market would doubtless welcome a downside surprise as proof that the current period of well-above target inflation is likely to prove temporary as the Fed has claimed. Aside from the CPI, federal budget data for July is also due today with timing differences on the receipts side of the ledger expected to have resulted in a particularly large deficit this month compared with the same month a year earlier.
Australian consumer confidence falls to 11-month low in August
Yesterday’s NAB business survey for July saw firms assess business conditions as being at their least favourable since November, although remarkably the business conditions index remained slightly above the long-term average despite being down 23pts from its May record high. Today, the Westpac consumer confidence survey indicated that consumers are also feeling less optimistic in light of the prolonged lockdown in Sydney and shorter lockdowns elsewhere. The headline index fell 4.4%M/M to 104.1 in August, unsurprisingly led by reduced optimism about the near-term outlook for the economy and conditions for making major purchases. This marks the lowest reading since last September, although the index is still fractionally above its long-term average. Whether it remains there next month will clearly depend on whether authorities are able to get on top of the current virus outbreak, while also making progress with its vaccination programme. In that regard, New South Wales reported a further 344 new virus cases – including further cases outside of Greater Sydney – and Melbourne’s lockdown has been extended for a least a further week.