Australian inflation rebounds, Chinese PMIs remain lacklustre

Summary:

• Australian inflation for Q2 bounced back more than estimated, Aussie dollar leads the gains
• Chinese PMI for manufacturing ticks up, services PMI falls short of expectations
• Apple earnings beat forecasts, the stock was up in after-hours trading hours

Higher inflation 

The Australian dollar is leading the gains among major currencies this morning after the second quarter inflation reading produced higher than expected numbers. The Aussie is rising almost 0.4% against the US dollar in the aftermath of the data. Headline price growth in the Antipodean economy jumped 0.6% QoQ compared to a flat reading during the first three months of the year, it exceeded expectations pointing to a bounce to 0.5% QoQ. In annual terms we were offered a rebound to 1.6% from 1.3%, the Bloomberg median estimate had called for 1.5%.

Tradable goods were a prime contribution to the inflation increase in quarterly terms in the second quarter. Source: Bloomberg

Nevertheless, the breakdown of this reading does not point to any sustained rise of price growth as it was primarily driven by higher energy prices as well as the weaker currency. As a result, the 0.6% QoQ increase came largely from tradable goods while inflation among non-tradable goods, reflecting more domestic price pressure, added solely less than 0.2 percentage point. This was mirrored in core price gauged which stayed unchanged in annual terms compared to the first quarter, though they ticked up in quarterly terms - weighted median bounced back to 0.4% from 0.1% and trimmed mean rose to 0.4% from 0.3%. Either way, despite a nice rebound inflation remains well below the RBA’s objective of 2-3%, so it should not be surprising that market participants have not dialed back their expectations regarding rate cuts there. The market-based probability shows over 80% chance for another cut by the year-end. Let us remind that the Australian central bank had already delivered two back-to-back rate cuts earlier this year.

The Aussie could see a bounce once the Federal Reserve hints at even more rate reductions in the coming months. From a technical point of view bulls have to pay close attention to the 200DMA. Source: xStation5

No significant improvement

The official manufacturing PMI for July came in at 49.7, up from 49.4 seen in June and the consensus of 46.6. Nonetheless, any number below 50 points suggests economic contraction, hence there are no too many reasons to cheer. The details showed that the rebound was driven by many categories including new export orders, output and employment. On the other hand, inventories of finished goods declined to 47 from 48.1, a sign suggesting that manufactures became more careful when it comes to production processes. At the same time, services PMI declined to 53.7 from 54.2, reaching its lowest value since November 2018. Let us remind that official PMIs focus more on the largest companies including state-owned ones. Caixin PMIs, focusing more on small to medium enterprises, will be released on Thursday. The data has not helped Asian equities recover and the Hang Seng is trading 1.3% down this morning, being the weakest index there. It is also worth adding that Donald Trump lashed out China overnight saying the country shows unwillingness to buy American agricultural products suggesting it continues to rip off the US.

The Chinese index (Hang Seng) broke below the lower boundary of the triangle pattern. The nearest support is situated nearby 10580 points. Source: xStation5

In the other news:

• Apple shows Q3 fiscal year EPS of $2.18 (cons. $2.1), revenue was $53.8 billion ($53.4 billion), the company expects its Q4 fiscal year revenue to be between $61 and $64 billion ($61.04 billion) - in after-hours trading the stock rose more than 4%

• New Zealand business confidence deteriorated to -44.3 from -38.1 in July, the NZ dollar loses 0.2% against its US counterpart 

• South Korean industrial output rise 0.2% MoM in June, the consensus had pointed to a 0.3% MoM increase