AUSTRALIA DATA: Westpac Lead Index Signals Slower Growth
The Westpac lead indicator fell 0.06% m/m in May after -0.01% but this resulted in the 6-month annualised rate falling to -0.08%, the weakest since September but importantly signalling that growth could ease to below trend over the second half of the year. The measure peaked in February and has been trending lower since as global uncertainty has risen and some domestic factors were also soft but Westpac believes these local “drags” are “temporary”.
- A disappointing recovery is likely to add to the argument for the RBA to ease policy further, especially if underlying inflation moves towards the 2.5% band mid-point. Westpac continues to expect the Board to be cautious given labour market tightness (May data print June 19) and be on hold on July 8 but then cut 25bp on August 12.
- The domestic economy appears to be struggling due to the end of public spending on some big projects but the private sector remains sluggish. Global uncertainty is also delaying investment decisions.
- A large share of the deterioration in the 6-month rate has been due to the stalling in the recovery of residential building approvals and the drop in hours worked, which hasn’t been helped by higher consumer inflation and unemployment expectations. Commodity and equity prices have also been a drag but to a lesser degree. However, US IP has added to the lead index.
Australia Westpac LI vs GDP growth
Source: MNI - Market News/LSEG
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MNI: CHINA PBOC CONDUCTS CNY135 BLN VIA 7-DAY REVERSE REPO MON
- CHINA PBOC CONDUCTS CNY135 BLN VIA 7-DAY REVERSE REPO MON
CHINA: Central Bank Injects Liquidity via OMO
- he PBOC issued CNY135bn of 7-day reverse repo at 1.4% during this morning’s operations.
- Today’s maturities CNY43bn
- Net liquidity injected CNY92 bn.
- The PBOC monitors and maintains liquidity in the interbank system through the issuance of reverse repo.
- The CFETS Pledged Repo Deposit Institutions 7 Day Weighted is at 1.43%, from Friday’s close of 1.63%.
- The China overnight interbank repo rate is at 1.66%, from the prior close of 1.48%.
- The China 7-day interbank repo rate is at 1.65%, from the prior close of 1.60%.
USD: Opens Heavy On The Downgrade
The BBDXY range Friday night was 1227.14 - 1233.92, Asia is trading around 1229. The USD has opened under pressure in early Asian trading as risk has a knee-jerk reaction lower on the US downgrade.
- “Currency traders are bearish on the US dollar, with strategists at JPMorgan Chase & Co. and Deutsche Bank AG predicting it will continue to weaken.”(BBG)
- “The dollar index is still close to its April lows, and sentiment among options traders is the most negative in five years, with bets on a decline in the dollar over the next year at the highest level since 2020.”(BBG)
- There is a broad consensus that the USD is set to embark on a decent move lower as the world reduces its exposure to the US and repatriates a lot of these flows.
- The USD has attempted a bounce to challenge some of those positions on the back of the US-China tariff deal.
- The challenge did not last very long as the weight of supply has seen the BBDXY struggle to maintain any upward momentum.
- The BBDXY needs to hold above 1220 for this challenge to have another leg, a close back below here and the focus will return once more back to the lows.
Data/Events : Atlanta Fed President Raphael Bostic , Dallas Fed President Lorie Logan and Fed Vice Chair Philip Jefferson speak at Amelia Island conference. New York Fed President John Williams speaks at an event organized by the Mortgage Bankers Association.
Fig 1: BBDXY Daily Chart
Source: MNI - Market News/Bloomberg
