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Busy day ahead - Westpac

FXStreet (Bali) - Sean Callow, FX Strategist at Westpac, reviews what is going to be a very busy day ahead, especially for the interest of the British Pound.

Key Quotes

After July’s encouraging report on Australian business sentiment, today we see whether consumers are also becoming more optimistic. The August reading on consumer sentiment from Westpac and Melbourne Institute is due at 10:30am Syd/8:30am Sing/HK. July saw a 1.9% m/m rise but the 94.9 headline index is still a very long way from readings around 110 in late 2013 or 99-100 in Q1 2014 before some of the unpopular measures in the May budget began to be leaked to the media in April. The RBA has noted the slide in confidence around the budget but indicated it is willing to wait to see if the consumer cheers up.

At 11:30am Syd/9:30am Sing/HK we see Australia’s Q2 wage cost index. This is usually ignored by markets but will be watched by the RBA for another reading on the amount of slack in the job market. Judging by the 2.6% y/y growth in wages in Q1, the slowest pace in the history of the series which began in the late 1990s, there is plenty of surplus labour. This is one of the keys to the RBA’s confidence that inflation will remain under control even if AUD falls as expected.

Japan’s Q2 GDP report should be eye-catching (9:50am Syd/7:50am Sing/HK). The consumption tax increase on 1 April helped pump up Q1 GDP, which rose 1.6% q/q (6.7% q/q annualized, US-style). Consensus is for a serious payback in Q2, -1.8% q/q, -7% q/q annualized. Japanese officials including the BoJ are eager to brush aside this contraction but it would hardly be an impressive outcome if the level of GDP is below end-2013.

China releases various July activity data at 3:30pm Syd/1:30pm local: fixed asset investment, retail sales and industrial production. Of these, most attention should be on IP, as investment is quoted YTD thus not volatile (f/c 17.4% y/y) and the quality of the retail sales survey is poor (f/c 12.5% y/y, up 0.1ppt). IP is seen steady at 9.2% y/y, holding the slight acceleration from the four year low of 8.7% in April. AUD and NZD should react to any divergence from 9.2% on IP, with only a passing look at the retail sales headline.

Europe’s calendar features the final readings on July CPI in Germany and France, along with Eurozone June IP, seen up a weak 0.2% y/y. The BoE inflation report will be closely scrutinized with a range of market opinions on when the first rate hike will come. Long GBP spec positions have been trimmed recently on more mixed UK data. Ahead of the inflation report we will see June UK unemployment, with consensus for a tick down to 6.4% from 6.5%.

The US data highlight is July retail sales, with consensus for a roughly steady growth rate, 0.2% m/m total, 0.4% ex-autos & gasoline. This survey often impacts on USD. Also due is June business inventories.

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