Aussie lower as banks rise mortgage rates, NASDAQ declines on tech sell-off

Summary:

• Australian dollar drives lower as other two major banks lift mortgage rates, trade balance surprises positively though

• NASDAQ (US100 on xStation5) loses over 1% due to a tech sell-off

• White House Press Secretary Sarah Sanders says it’s “certainly possibility” Trump will move ahead with tariffs on China

Antipodean currencies are on the back foot this morning which in part could be assigned to higher mortgage rates in Australia after two big banks joined Westpac to do so. We have four big lenders in Australia and three of them have already chosen to lift mortgage rates in response to rising funding costs. Let us remind that Westpac was the first one which increased mortgage rates last week and it could have been expected that other lender would want to follow. Indeed, Commonwealth Bank of Australia (CBA) - the country’s biggest mortgage bank, along with Australia & New Zealand Banking Group (ANZ) both raised their key standard variable mortgage rate by 15 and 15 basis points respectively for owner-occupiers. Why did they do so? Whereas the Reserve Bank of Australia has been keeping rates on hold for a long time banks in Australia rates in the money market - funding costs - have been rising at the same time. Therefore, these banks have wanted to simply secure their margins they earn on loans but these hikes could mean that consumers could become worse-off. This is especially true when we take into account the fact that real wage growth has been pretty low there while house prices have fallen recently - this could prompt consumer to dial back their spending due to a wealth effect. That said, deteriorated moods among consumers in conjunction with falling spending could convince the RBA to cut rates - this is why the Aussie dollar is declining around 0.3% this morning.

The Australian trade balance remained robust in July, and exports did not suffer despite tariffs-related concerns. Source: Macrobond, XTB Research

On the other hand, we also got quite encouraging trade numbers from Australia. They showed that a surplus in July admittedly shrank from upwardly revised 1937 million AUD to 1551 million AUD but this fall turned out to be much lower than expected. Overall, the value of exports dropped just 1% while imports fell 1% mainly due to higher fuel prices. Note that rural exports accounted for a significant portion of the overall drop in exports and it may have something to do with drought present there.

The long-term outlook for the Aussie does not look well given the fact the pair is moving on the verge of a fresh selling wave once 0.7160 is ultimately broken. Source: xStation5

On the equity front we have to note that the NASDAQ (US100) dropped on Wednesday as much as 1.2% on a widespread sell-off of tech stocks. For example, Facebook declined 2.3%, Twitter moved down 6.1%, Netflix sank 6.2% and Microsoft decreased 2.9%. Among reasons standing behind such a severe pullback in case of Twitter and Facebook were congressional hearings of Facebook’s COO Sheryl Sandberg and Twitter CEO Jack Dorsey in the case related to Russian election interference in 2016. Falls were much less severe elsewhere with the SP500 (US500) falling 0.3% and the Dow Jones (US30) rising 0.1%. On the flip side, Chinese and overall Asian stocks have responded nervously going down on Thursday quite noticeably. As of 7:02 am BST the Shanghai Composite is 0.3% down, the Hang Seng (CHNComp) is sinking 1.1% while the Australian benchmark is dropping 1.1%. Note that investors may be cautious in anticipation of possible tariffs Donald Trump may come up with after a public comment period ends today. Note that White House Press Secretary Sarah Sanders told reporters at White House that it is “certainly a possibility” that President Trump will move ahead with duties on China. Keep in mind that this time we are talking about levies on $200 billion of Chinese imported goods.

China’s stock market is again approaching its crucial support in the neighbourhood of 10440 points. Stay cautious trading the index as tariffs loom. Source: xStation5