Markets Key Themes
- AUS business and consumer confidence solid
- AUS wages remain very weak, real income is negative
- EU GDP and inflation weak
- US Retail Sales weaker than hoped
- Fed-speak dovish - Fisher, Yellen and Kocherlakota
- Geopolitical events lingering despite some progress in Iraq, Gaza
- The bond rally marches on and on whilst stocks bounce off support levels
The combination of weak data in Europe and the US, dovish Fed comments (still too much slack in the labour market) and uncertainty in Ukraine/Russia has again helped bonds rally to new highs for the year. The bond market has broken into new territory and the pain trade is higher prices. European data again highlighted the challenges facing the ECB and the European Governments. Credit and Equity markets could be vulnerable if confidence in the EMU drops in coming months.
AUS business and consumer confidence rose further which will please the RBA as this is good news for the non mining recovery story. However the results did show the recovery remains quite a jobless recovery and with the unemployment rate expected to remain above 6% this year. Wages data again displayed a weak labour market with real incomes still falling which will likely weigh on consumption in the months ahead. Last week's data reinforces a rates on hold environment.
What's coming up this week?
AUS Key releases
- RBA minutes Tuesday - not expecting any changes to message about the outlook for rates
- RBA's Stevens speaking to House of Representatives - looking for a balanced outlook and will be challenged about the labour market in Q&A.
Offshore Key releases
- US Housing data Monday and Tuesday - has been moderating
- US FOMC Minutes Wednesday - look for clues for changes to timing of first hike (unlikely)
- BOE Minutes Wednesday - when will they hike?
- CH HSBC Manufacturing Thursday -another reasonable number expected, similar to last month
- UK Retail Sales Thursday
- US Fed's Yellen speaks at Jackson Hole Friday
Some charts (source Bloomberg):
AU Wages growth remains very weak at 2.60% y.o.y. Note it has been falling since 2011...when will it rise again?
US 10yr yield continues to fall and is on the way towards the next target around 2.25% (however note that 2.35-2.40% has been an important level in recent years so a sharp rejection off this level would be significant).
AUS 10yr bond yields are consolidating between 2.30-2.40%
German 10yr yields fall below 1% , well below the EU debt crisis levels in 2011
AUD fails to test/break 0.9200 and is now trying to break higher which would suggest a move back towards 0.9450 as our sovereign bond yields remain attractive
The DAX bounced last week but the onus is on the 9000 support level to hold.