Modest moves and mixed data was the order of the day for this session, with markets still basically treading water waiting for the next big thing. There had been some earlier excitement created from comments made by Chinese Premier Li Keqiang. He said yesterday that growth must be maintained above 7 per cent and that this level was a lower bound threshold for growth.
Commodities certainly pushed higher on the comments, albeit modestly, with crude up 0.5 per cent ($107), copper up 0.9 per cent and gold up another $7.7 to $1343. Similarly the Aussie dollar got a boost and sits just under $0.93, up almost half a cent from yesterday afternoon and nearly 80 pips from the low last night.
Stocks in Europe and the US however only seemed to get very slight support from the premier’s comments – and that’s following solid gains in Hong Kong and Shanghai. That’s where the mixed US data comes in.
On the positive side we saw house prices push higher – up another 0.7 per cent in May, and there is a strong rebound underway here in some cities. On the flipside was the Richmond Fed manufacturing index. This unfortunately slumped in July to -11 from 7, which would normally be a worry if it wasn’t for the fact that it’s at odds with most of the other data-flow.
So recall the spike we saw last week in the Philly Fed index to its highest level in about two years. Similarly the Empire State index pushed higher as well. Against that backdrop the slump in the Richmond Fed index can probably be put down to volatility or noise, as is often the case with these surveys.
Perhaps this is why the market didn’t really seem to react (perhaps that and the China comments) – indeed US stocks spent most of the time bouncing just above zero and continued to push slightly higher for most of the session (we’re only talking a few points at the high).
A sell-off into the close saw the S&P500 close in the red, although only just at -0.2 per cent (1692). The Dow however managed a small rise of 22 points to be at 15,567. Finally, the Nasdaq was off 0.6 per cent (3579), although earnings in the tech space were mixed.
There were only a few bits and pieces otherwise. For the price action we saw the euro up about 40 pips to 1.3225, the yen at 99.43 and the US 10-year yield rising nearly 3 bps to 2.51 per cent. Other than that, US regulators are examining whether to allow US banks to continue to trade and hold commodities.
For Australia today the SPI suggests our stocks will be effectively flat. Then in terms of news and data it’s all about the CPI (at 1130 AEST). Now, as I mentioned on Monday, the result today is of academic interest only. But while we’re on it, the expectation is that CPI rose 0.5 per cent on the headline while cores are expected to remain around the mid-point of the Reserve Bank’s target band at 2.5 per cent.
The reason why this is only of academic interest is because the Reserve Bank has said it will look through any lift in inflation and cut rates anyway if it thinks the economy needs it, and judging from their comments on the Australian dollar and business demands for still lower rates, I suspect it does indeed think the economy still needs it.
Outside of the CPI we see a flash estimate of China’s manufacturing PMI at 1145 AEST and then a whole bunch of European PMIs tonight. For the US, the key data is new home sales.
That’s the lot, have a great day…
Adam Carr is a leading market economist.
Follow @AdamCarrEcon on Twitter.