EQUITIES: Japanese Equities Lower, Following Earnings & Ahead Of BoJ

AUD/USD is gravitating higher as the Tuesday session unfolds, with the pair last in the 0.6925/30 region, around 0.20% stronger for the session. Upside focus will rest on Monday intra-session highs just above 0.6940. It is the best performer in the G10 space at this stage, with NZD and JPY both lagging. 

• Some support has come after the stronger than expected August retail sales print. The ABS noted warmer than usual weather in August played a role, but it's also possible tax cuts were a positive as well.
• At face value the data won't give fresh ammunition to RBA doves, looking for a rate cut in the near term. Other data was more mixed with building approvals down -6.1%m/m. while earlier data showed an unchanged manufacturing PMI for Sep (46.7).
• Still, signs of weaker consumer spending trends have been a key RBA watch point, in terms of what might drive a dovish shift.
• Elsewhere, US equity futures are marginally in positive territory, so a another A$ tailwind.
• The AUD/NZD cross is up to 1.0935, eyeing second half Sep highs near 1.0950. The AUD/JPY cross is up but away from session highs, last near 99.55 (highs were at 99.75). 

ACGBs (YM +1.0 & XM -1.5) are slightly mixed after today’s domestic data drop.

• Retail sales rose 0.7% m/m (estimate +0.4%) in August versus a revised +0.1% in July.
• “Australian retail sales rose by more than expected in August as tax cuts and warmer weather encouraged households to spend, reinforcing the case for interest rates to remain on hold for the time being.” (per BBG)
• Building approvals fell 6.1% m/m (estimate -4.3%) in August versus a revised +11.0% in July.
• Judo Bank PMI Mfg for September fell to 46.7 from 48.5 in August, while Australia’s home values rose 0.5% m/m (+6.7% y/y) in September, according to the CoreLogic Home Value Index report.
• Cash US tsys are 1-2bp richer in today’s Asia-Pac session after yesterday’s Powell-induced sell-off.
• Cash ACGBs are slightly cheaper with the AU-US 10-year yield differential at +21bps.
• Swap rates are -1bp to +1bp with the 3s10s curve flatter.
• The bills strip is cheaper with pricing -2 to -4 across contracts.
• RBA-dated OIS pricing is 1-4bps firmer across 2025 meetings. A cumulative 13bps of easing is priced by year-end.

Australian August retail sales were above expectations. We rose 0.7%m/m, against a 0.4% forecast, while the prior month was revised up to +0.1%m/m, versus flat initially. The August rise was the strongest since Jan of this year (+1.0%). 

• At face value the data suggests some positive impact coming through from the government's tax cuts/costs of living relief measures. The ABS also noted that: “This year was the warmest August on record since 1910, which saw more spending on items typically purchased in spring. This included summer clothing, liquor, outdoor dining, hardware, gardening items, camping goods and outdoor equipment.”
• In terms of the detail by sub-industry, food rose 0.6%m/m, after a 0.2% gain in July. Household goods were down -0.3%m/m, after a July -0.1% dip. This was the only sub category to fall.
• Apparel rose 1.5%, department stores up 1.6%, after both categories fell in July. Cafes were up 1.0%m/m, while other 1.3%m/m. This fits with the ABS's point outlined above.
• In y/y terms spending rose 3.1%, this was the strongest pace since mid 2023, see the chart below. Base effects may help keep y/y momentum resilient in the next few months. Focus is likely to rest on spending trends in coming month, with the resilient y/y trend unlikely to give the RBA cause to shift its policy bias (at least on this backdrop alone). 

Fig 1: Australian Retail Sales Y/Y Trend Improving

Source: MNI - MarketNews/Bloomberg