Headlines

*PBoC sets weaker fixing after yuan tumbles to three-month low

*RBA signals further rate hikes, reiterates not on a pre-set path

*Dollar continues to make gains, euro loses support at 1.0150

*Asian stocks mostly positive as the region follows Wall Street positivity

US equities were firmer overnight though gains were limited and trading conditions thin. The bias was towards tech/growth as Treasury yields sold off after the tumble in US survey data. The energy sector was pressured amid progress on the Iran nuclear deal. APAC stocks have mostly traded higher but with limited upside as economic slowdown concerns linger. US equity futures are marginally in the red. European markets have opened higher.

USD enjoyed a positive day and has started this morning on the front foot as well. DXY pushed north through 106 despite the dismal NY Fed manufacturing survey. Depressing China data and the surprise rate cut by the PBoC sent investors towards safe haven currencies. EUR has tumbled from above 1.03 to near 1.01 and the bottom of the recent range. GBP is nearing 1.20 after mixed employment data. AUD has fallen back to 0.70 while NZD is moving back towards 0.63.

Day Ahead – Antipodeans in focus

We have several important data points today including the German ZEW survey, and US housing and industrial production figures. Better numbers for the latter, largely helped by lower gasoline may keep a bid in the dollar. Overnight we have the release of the Q2 wage index out of Australia. The RBA has often highlighted wages as a key risk for inflation and whether it has become embedded. Expectations are for another rise to 2.7% from 2.4% in Q1. The market is currently around 50/50 on another 50bp RBA rate hike in September so there could be volatility around this data point.

We also get the RBNZ meeting overnight. A half point rate hike is expected taking the OCR to 3%. We highlighted in this week’s webinar that the bank is getting closer to the terminal rate. The domestic economy is showing signs of cooling and commodities dipping recently. Will policymakers signal a deceleration in their forward guidance? Or do they keep their inflation fighting credibility intact?

Chart of the Day – Dax bull channel

The German ZEW index should give us more clues into the severity of the downturn in the euro area. It has proven to be a decent leading indicator for the wider PMIs in this cycle. The expectations index hit its lowest level in over a decade in July underlining imminent recession risks. Germany itself continues to suffer from low water levels on the Rhine as well as a gas levy for German consumers. The latter could keep inflation higher for longer.

The Dax has seen a series of higher highs and higher lows since dropping in early July below 12,400 near to March support. Prices recently moved above the 100-day SMA at 13,709 which becomes initial support. A major Fib level (38.2%) of the move from November to July sits at 13,910. Prices are not overbought. The midway point of that move is 14,364.