Risk aversion was the name of the game during the Asian session, as a lack of fresh catalysts kept the pressure on higher-yielding investments.
- U.K.’s BRC retail sales monitor (y/y) steadies at 0.6% in January
- Australia’s retail sales falls by 0.5% vs. 0.2% decline expected, 1.3% uptick in November
- Australia shows 1.36B AUD trade deficit vs. 0.25B surplus expected, 0.04B surplus in November
- RBA keeps rates at 1.50% as expected in February
- Bitcoin flirts with $6,000 levels
Australia’s top-tier reports
Hours before the RBA’s statement Australia printed its retail sales and trade numbers for the month of December.
Retail sales clocked in a 0.5% decline in December following an upwardly revised 1.3% jump in November. This put annual sales down from 2.9% to 2.5%. Not really surprising since iPhoneX sales as well as Black Friday and Cyber Monday deals had boosted the previous month’s numbers.
Analysts note that, in line with tightening household budget, it’s the discretionary items that are taking hits. In addition, it seems that mining states such as Western Australia and Queensland register weaker numbers than non-mining states.Still, optimism over the improving labour market as well as the 0.9% sales volume increase in Q4 2017 are enough to keep some bears away.
Meanwhile, a trade report reflected a deficit of 1.36B AUD for the month of December, which is worse than the expected 0.2B surplus. That’s the first gap in eight months and the widest since August 2016, yo!
A closer look tells us that exports had risen by 2.0% for the month thanks to increased shipments or iron ore and coal.
On the other hand, imports jumped by a strong 6.0% on the back of stronger imports of fuel and machinery and equipment.
If we consider the full year, Australia’s trade balance churned an 11.28B AUD surplus against a 14.66B AUD deficit in the same time last year.
RBA’s policy statement
As expected, the Reserve Bank of Australia (RBA) kept its interest rates at a record low of 1.50% in February.
Governor Philip Lowe and his team believe that the data over the summer still point to GDP growth picking up to the RBA’s estimates of 3.0%. Not only that, but positive business conditions, improving non-mining investment, and increased public infrastructure investment are all expected to support the economy.
The RBA wasn’t all rainbows and unicorns, however. It continues to worry about household spending, saying that
“One continuing source of uncertainty is the outlook for household consumption. Household incomes are growing slowly and debt levels are high.”
And while it believes that “various forward-looking indicators continue to point to solid growth in employment over the period ahead,” it also cautions that “…wage growth remains low. This is likely to continue for a while yet, although the stronger economy should see some lift in wage growth over time.”
It’s also not too happy about inflation, sharing that it will likely “remain low for some time.” RBA currently expects CPI at a bit above 2.0% in 2018.
Overall, the central bank believes that
“The low level of interest rates is continuing to support the Australian economy. Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual.”
The not-so-hawkish tone, combined with downside surprises in Australia’s CPI and retail sales reports, were enough to spook rate hike junkies who were expecting one some time in mid-2018.
Overall risk aversion
Asian session traders took cues from their U.S. counterparts and extended the risk aversion vibe.
In case you were too busy watching replays of all the Super Bowl ads, you should know that expectations of higher inflation and less stimulus from major central banks are prompting investors to pull their moolah from higher-yielding assets.
- Nikkei dropped by 6.24% to 21,265.8;
- Australia’s A SX 200 is down by 1.89% to 5,805.5;
- Hang Seng is down by 4.94% to 30,651.3, and
- Shanghai index is down by 2.15% to 3,412.547.
Even commodity prices weren’t spared.
- Safe-haven gold left other commodities eating dust with its 0.36% gain to $1,344.05 while
- Brent crude oil slipped by 0.10% to $66.91 and
- U.S. WTI is down by 0.02% to $63.41.
Major Market Mover(s):
AUD and CAD
High-yielding currencies like the comdolls took hits on a bout of risk aversion. It also didn’t help that Australia printed one bearish report after another, while a slide in oil prices weighed on the Loonie. Interestingly, the Kiwi was spared from losses and actually defended its level during the session .
AUD/USD is down by 18 pips (-0.22%) to .7858;
AUD/JPY is down by 56 pips (-0.65%) to 85.35;
AUD/NZD is down by 73 pips (-0.68%) to 1.0767, and
EUR/AUD is up by 53 pips (+0.34%) to 1.5745.
USD/CAD is up by 6 pips (+0.05%) to 1.2524;
CAD/JPY is down by 39 pips (-0.44%) to .7422;
EUR/CAD is up by 16 pips (+0.11%) to 1.5519, and
GBP/CAD is up by 16 pips (+0.09%) to 1.7513.
Not surprisingly, the low-yielding currencies took center stage during the bloodbath.
USD/JPY is down by 45 pips (-0.41%) to 108.62;
EUR/JPY Is down by 50 pips (-0.37%) to 134.39, and
GBP/JPY is down by 53 pips (-0.35%) to 151.67.
Watch Out For:
- 7:00 am GMT: Germany’s factory orders (0.6% expected, -0.4% previous)
- 7:45 am GMT: France’s government budget balance
- 9:00 am GMT: German Bundesbank President Weidmann to give a speech in Frankfurt
- 9:10 am GMT: Euro Zone retail PMI