Dollar Firms Up Slightly after Retail Sales, Kiwi Still the Strongest

Dollar trades mildly higher in early US session after better than expected retail sales data, but upside moment is weak so far. Mild strength in US futures sends Swiss Franc and Yen slightly lower. Overall, New Zealand Dollar is set to end as the best performer for the week, as RBNZ hike speculations intensified. Dollar is following as second, then Yen. Australian and Canadian Dollar are the worst performers and there is no sign of a turn around.

In Europe, at the time of writing, FTSE is up 0.09%. DAX is down -0.05%. CAC is down -0.46%. Germany 10-year yield is down -0.011 at -0.342. Earlier in Asia, Nikkei dropped -0.98%. Hong Kong HSI rose 0.03%. China Shanghai SSE dropped -0.71%. Singapore Strait Times rose 0.39%. Japan 10-year JGB yield rose 0.0069 to 0.021.

US retail sales rose 0.6% in Jun, ex-auto sales rose 1.3%

US retail sales rose 0.6% mom to USD 621.3B in June, much better than expectation of -0.6% mom decline. Ex-auto sales rose 1.3% mom, above expectation of 0.4% mom. Ex-gasoline sales rose 0.4% mom. Ex-auto, ex-gasoline sales rose 1.1% mom.

Also released, Canada housing starts rose to 282k in June. Foreign securities purchases rose to CAD 20.79B in May. Wholesale sales rose 0.6% mom in June.

Eurozone CPI finalized at 1.9% yoy in Jun, EU at 2.2% yoy

Eurozone CPI was finalized at 1.9% yoy in June, down from May’s 2.0% yoy. The highest contribution came from energy (+1.16%), followed by non-energy industrial goods (+0.31%), services (+0.28%) and food, alcohol & tobacco (+0.15%).

EU CPI was finalized was finalized at 2.2% yoy, down from May’s 2.3% yoy. The lowest annual rates were registered in Portugal (-0.6%), Malta (0.2%) and Greece (0.6%). The highest annual rates were recorded in Hungary (5.3%), Poland (4.1%) and Estonia (3.7%). Compared with May, annual inflation fell in twelve Member States, remained stable in four and rose in eleven.

Eurozone exports rose 31.9% yoy in May, imports rose 35.2% yoy

In May, Eurozone Exports rose 31.9% yoy to EUR 188.2B. Imports rose 35.2% yoy to EUR 180.7B. As a result Eurozone recorded a EUR 7.5B surplus in trade in goods. Intra-Eurozone trade rose 45.4% yoy to EUR 181.5B.

In seasonally adjusted terms Eurozone exports dropped -1.5% mom to EUR 195.1B. imports rose 07% mom to EUR 185.8B. Trade surplus narrowed to EUR 9.4B. Intra-Eurozone trade rose to EUR 183.7B.

BoJ stands pat, upgrades inflation forecasts

BoJ kept monetary policy unchanged today. Under yield curve control framework, short term interest rate is held at -0.1%. 10-year JGB yield target is kept at around 0%, without upper limit on JGB purchases. The decision was made by 8-1 vote, with Goushi Kataoka dissented again, pushing for further strengthening of monetary easy, by lowering short and long term interest rates. BoJ will will also continue to buy ETFs and J-REITS with upper limit of JPY 12T and JPY 180B respectively.

In the new economic forecasts, BoJ:

  • Downgraded fiscal 2021 GDP growth to 3.8% (from April’s 4.0%)
  • Upgraded fiscal 2022 GDP growth to 2.7% (from 2.4%).
  • Kept fiscal 2023 GDP growth at 1.3% (unchanged).
  • Upgraded fiscal 2021 CPI core to 0.6% (from 0.1%).
  • Upgraded fiscal 2022 CPI core to 0.9% (from 0.8%).
  • Kept fiscal 2023 CPI core at 1.0% (unchanged).

New Zealand CPI rose 1.3% qoq, 3.3% yoy in Q2, RBNZ hike speculation intensifies

New Zealand CPI rose 1.3% qoq in Q2, well above expectation of 0.7% qoq. For the 12-month. CPI accelerated to 3.3% yoy, up from 1.5% yoy, well above expectation of 2.8% yoy. The annual rate is the highest in nearly a decade. Also, the figures were well above RBNZ’s forecast of 0.6% qoq 2.6% yoy inflation.

Speculations of an early RBNZ hike intensified further after the release. Westpac now expects a hike in OCR by 0.25% in August, with another hike at both October and November meeting.

New Zealand BusinessNZ manufacturing rose to 60.7, facing labor shortages and logistics disruptions

New Zealand BusinessNZ Performance of Manufacturing Index rose from 58.6 to 60.7 in June. Looking at some details, production dropped slightly form 64.8 to 64.5. Employment rose from 52.0 to 56.5. New orders rose slightly from 63.5 to 63.6. Finished stocks rose from 53.6 to 57.3. Deliveries rose from 53.4 to 55.0.

BusinessNZ’s executive director for manufacturing Catherine Beard said: “Despite the overall pick-up in activity, the proportion of negative comments (53.1%) remained higher than positive ones (46.8%).  Many of the positive comments outlined increased demand, but this is counterbalanced by significant labour shortages and logistics disruptions many manufacturers are now facing.”

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.1788; (P) 1.1820; (R1) 1.1843; More

EUR/USD is staying in tight range below falling 4 hour 55 EMA and outlook is unchanged. With 1.1880 resistance intact, further fall is expected. Current decline from 1.2265, as the third leg of correction from 1.2348, could target 1.1703 support. On the upside, though, break of 1.1880 resistance should indicate short term bottoming, and bring stronger rebound to 1.1974 resistance first.

In the bigger picture, rise from 1.0635 is seen as the third leg of the pattern from 1.0339 (2017 low). Further rally could be seen to cluster resistance at 1.2555 next, (38.2% retracement of 1.6039 to 1.0339 at 1.2516). This will remain the favored case as long as 1.1602 support holds. Reaction from 1.2555 should reveal underlying long term momentum in the pair. However sustained break of 1.1602 will argue that the rise from 1.0635 is over, and turn medium term outlook bearish again.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
22:30 NZD BusinessNZ Manufacturing Index Jun 60.7 58.6
22:45 NZD CPI Q/Q Q2 1.30% 0.70% 0.80%
03:00 JPY BoJ Interest Rate Decision -0.10% -0.10% -0.10%
08:00 EUR Italy Trade Balance (EUR) May 5.64B 5.87B
09:00 EUR Eurozone Trade Balance (EUR) May 9.4B 8.2B 9.4B 13.4B
09:00 EUR Eurozone CPI M/M Jun F 0.30% 0.30% 0.30%
09:00 EUR Eurozone CPI Y/Y Jun F 1.90% 1.90% 1.90%
09:00 EUR Eurozone CPI Core M/M Jun F 0.30% 0.30% 0.30%
09:00 EUR Eurozone CPI Core Y/Y Jun F 0.90% 0.90% 0.90%
12:15 CAD Housing Starts Jun 282K 270.0K 275.9K
12:30 CAD Foreign Securities Purchases (CAD) May 20.79B 7.80B 9.95B
12:30 CAD Wholesale Sales M/M May 0.50% -0.90% 0.40%
12:30 USD Retail Sales M/M Jun 0.60% -0.60% -1.30% -1.70%
12:30 USD Retail Sales ex Autos M/M Jun 1.30% 0.40% -0.70% -0.90%
14:00 USD Michigan Consumer Sentiment Index Jul P 86.5 85.5
14:00 USD Business Inventories May 0.40% -0.20%

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