GBP/USD daily chart, June 22, 2018

Retail Sales Slam the Aussie, with the GBP in Focus Today

Earlier in the Day:

Economic data released through the Asian session this morning was on the heavier side. Key stats included August manufacturing, 2nd quarter company gross operating profit figures and July retail sales figures out of Australia, 2nd quarter capital spending and finalized August manufacturing PMI numbers out of Japan and China’s August manufacturing PMI.

For the Japanese Yen,

Capital spending surged by 12.8% in the 2nd quarter, year-on-year, coming in well ahead of a forecasted 6.6% rise, following a 1st quarter 3.4% increase.

The increase was attributed to the auto and electronics sectors and marked the largest rise since 2006.

The Japanese Yen moved from ¥111.137 to ¥111.076 against the Dollar through the release of the figures.

The finalized August manufacturing PMI was in line with prelim and forecasts, the PMI holding at 52.5 and up from July’s 53.3, affirming a slight uptick in activity.

The Japanese Yen moved from ¥111.085 to ¥111.006 against the Dollar upon release of the figures, before rising to ¥11098 at the time of writing, up 0.05% for the session, this morning’s data providing some support to the Yen, with trade war jitters also supporting appetite for the Yen.

For the Aussie Dollar,

The AIG Manufacturing Index rose from 52.0 to 56.7 in August.

  • All 7 activity sub-indexes expanded, the exports sub-index surging by 8.5 points to 58.4 points, with 6 out of 7 of the activity indexes accelerating in August, only inventories seeing slower growth.
    • The sales sub-index rose by 15.2 points to 60.7, with new orders rising by 8.5 points to 59.6.
    • The employment sub-index rose by 3 points to 53.3, with the input prices sub-index jumping by 9.3 points to 77.4.
    • The average wages sub-index rose by 4.1 points to a record high 64.7.
  • 5 of the 8 sub-sectors expanded, with clothing & other manufacturing, recorded media and small printing contracting in August, while metal products was flat at 49.3.
  • The effects of the drought in NSW and Queensland was reported to have been reflected in input costs and sales, with disrupted supply and higher prices of raw agricultural inputs. Sales to the agricultural sector were also on the decline.

The Aussie Dollar moved from $ 0.71910 to $0.71895 upon release of the figures, the figures having a muted impact on the Aussie Dollar ahead of the retail sales numbers.

Company gross operating profits rose by 2% in the 2nd quarter, coming in ahead of a forecasted 1.3% rise, following an upwardly revised 6.5% increase in the 1st quarter.

Figures released by the ABS showed that corporate operating profits surged by 11.4% year-on-year in the 2nd quarter, with wages and salaries rising by 4.5%, while up 1.2% quarter-on-quarter.

Retail sales came in flat for July, falling short of a forecasted 0.3% rise, following June’s 0.4% increase, according to figures released by the ABS.

  • 3 out of the 6 industries saw falls in sales, these being household goods retailing (-1.2%); clothing, footwear and personal accessory retailing (-2%) and department stores (-1.9%).
  • Offsetting the declines were increased sales in other retailing (1.7%), food (0.3%) and cafes, restaurants and takeaway food services (0.6%).

The Aussie Dollar moved from $0.71852 to a low $0.7166 upon release of the figures.

Out of China, the August Caixin manufacturing PMI eased from 50.8 to 50.6 to fall below a forecasted 50.7, the index falling to a 14-month low.

  • New orders rose at the slowest pace since May 2017, with export sales falling for a 5th consecutive month.
  • Employment continued to decline, contributing to an increase in backlogs.
  • Inflationary pressures rose, with companies reporting a notable increase in both input costs and output charges.
  • Confidence remained close to June’s 6-month low, with firms raising concerns over the U.S – China trade war.

The Aussie Dollar moved from $0.71772 to $0.71801 upon release of the figures, leaving the Aussie Dollar down 0.14% for the session.

In the equity markets, it was a bad start to the day, with the Nikkei, Hang Seng and CSI300 seeing red in the early hours, solid data out of Japan providing little support, as trade war jitters continued to affect risk appetite. Bucking the trend was the ASX200, which was up 0.05% at the time of writing, the index supported by the upbeat corporate operating profit figures released in the early hours.

The Day Ahead:

For the EUR, economic data is limited to August finalized manufacturing PMI numbers out of France, Germany and the Eurozone, with Italian and Spanish manufacturing PMI numbers due out, any deviation from prelim figures and a shift in numbers out of Italy to provide direction, forecasts pointing to a softer EUR.

Outside the data, concerns over Trump’s intentions with the EU on trade could weigh on the EUR, as trade war tensions reignite following Thursday’s chatter.

At the time of writing, the EUR was down 0.05% to $1.1596.

For the Pound, following a lack of stats last week, focus shifts to the private sector, with the August manufacturing PMI due out later this morning.

Forecasts point to a softening, with weaker new orders in July supporting softer productivity across the sector.

Slower growth in the sector will weigh on the Pound, though negative sentiment could be eased should Brexit chatter provide the markets with some optimism.

At the time of writing, the Pound was down 0.30% to $1.2921, with Brexit chatter the key driver through the day.

Across the Pond, its labour day in the U.S, leaving the markets to consider what lies ahead, a combination of FOMC member chatter, labour market and private sector PMI numbers and President Trump and trade war chatter to dictate Dollar moves.

At the time of writing, the Dollar Spot Index was up 0.05% to 95.192.

For the Loonie, with Canadian markets closed, focus will be on Wednesday’s BoC interest rate decision and, more importantly, rate statement, the tone of which will likely remain hawkish on hopes of a resolution to NFTA talks and a pickup in inflation, though there will be some concern over the effects of the ongoing trade war on the Canadian economy.

At the time of writing, the Loonie was down 0.21% to C$1.3067 against the U.S Dollar, the markets responding to the failure to close out NAFTA talks on Friday.