Asia today: A mild hawk bias to RBA minutes; Bernanke up next

Reserve Bank of Australia minutes were the highlight of a slightly busier Asian session today. The RBA kept rates unchanged at 3.5 percent at the last meeting and the minutes showed members felt there was no need for further adjustment after recent “hefty cuts” and signs the economy has more momentum than previously thought. There was little to garner for future policy direction from the minutes though, but the RBA was cautious overall given the continued risks associated with Europe’s sovereign debt crisis and a slowdown in the Chinese economy this year. Domestic inflation remains contained overall, with the strong AUD, weak retailing and housing all playing a role. The RBA noted that at current levels, mortgage rates are 50-60 basis points below the 15-year average. There was muted reaction to the minutes in the currency markets though a marginal hawkish slant saw the AUD consolidate the gains made earlier.

As one might expect, USDJPY’s slide below 79.0 overnight brought out the customary verbal warning from Japanese Finance Minister Azumi. He commented that the JPY’s recent gains did not reflect Japan’s economic fundamentals and as such were suggested to be speculative in nature. Again, Japan will take “decisive action” on excessive currency moves. USDJPY managed a 10 point rally on the comments.

On the data front, Singapore’s exports data was an upside surprise, especially given that Q2 GDP numbers were such a disappointment. Non-oil export growth rose by 6.8 percent from a year earlier in June following a 3.2 percent gain in May with the bulk of the improvement coming from  a large increase in pharmaceutical shipments (a notoriously volatile sector) while electronics exports were a slow 1.6 percent higher from a year earlier.

It was shaping up to be a familiar story overnight with the EUR trading the easy path lower in early trading, almost giving back all the gains made late-Friday. However, the latest US data series heightened expectations of quantitative easing (QE) hints in today’s testimony by Federal Reserve Chairman Bernanke and the US dollar gave back most of the ground gained.

US retail sales were a disappointing -0.5 percent m/m in June versus an expected +0.2 percent while core sales were also a weaker -0.2 percent versus +0.2 percent expected. In contrast, the headline empire manufacturing survey rebounded to 7.39 from 2.29 though the new orders component saw its first decline since late 2011. The weak data was accompanied by downward revisions to growth expectations by some economists and in turn led to increased expectations that Bernanke will give greater hints of additional QE measures in his first testimony tonight. Despite this, Wall St struggled and posted another red day, the seventh of eight sessions. The DJIA fell 0.39 percent, S&P 0.23 percent and the Nasdaq 0.4 percent.

Data Highlights

• US Jul. Empire Manufacturing out at 7.39 vs. 4.0 expected and 2.29 prior
• US Jun. Advance Retail Sales out at -0.5% m/m vs. +0.2% expected and -0.2% prior
• US Jun. Core Retail Sales out at -0.2% m/m vs. +0.2% expected and flat prior
• US May Business Inventories out at +0.3% m/m vs. 0.2% expected and revised 0.3% prior
• NZ Q2 Consumer Prices out at +0.3% q/q, +1.0% y/y vs. 0.5%/1.1% expected and 0.5%/1.6% prior resp.
• SI Jun. Non-oil Domestic Exports out at +6.8% y/y vs. 2.0% expected and 3.2% prior
• AU New Vehicle Sales out at -0.6% m/m, +18.4% y/y vs. revised 2.3%/22.2% prior resp.
• China Jun. Actual FDI out at -6.9% y/y vs. -2.0% expected and +0.1% prior

Upcoming Economic Calendar Highlights

(All Times GMT)

• Sweden Riksbank Minutes (0730)
• UK ONS House Prices (0830)
• UK CPI/RPI (0830)
• UK BOE’s King, Tucker, Turner, Kohn, Fisher to testify (0900)
• GE ZEW Surveys (0900)
• EU ZEW Survey (0900)
• CA Manufacturing Sales (1230)
• US CPI (1230)
• CA BOC Rate Announcement (1300)
•  US TIC Flows (1300)
• US Industrial Production (1315)
• US Capacity Utilisation (1315)
• US Fed’s Bernanke to testify (1400)
• US NAHB Housing Market Index (1400)
• US Fed’s Pianalto to speak (1715)

For more information on today’s events, please visit the financial calendar