AUD dips on dovish RBA minutes, soft China GDP data

The Asian session saw the AUD slide 20 points after RBA minutes that were more dovish than expected. It then rebounded, only to fall 40 points after the China GDP data came in below expectations. But China did say there was little chance of a second dip for the country.

RBA minutes of the October meeting kicked off the Asian session and were generally more dovish, with a focus on an improving inflation outlook. This improved outlook, if confirmed by further data, would “increase the scope for monetary policy to provide some support to demand”, should that prove necessary, the minutes said. This places more emphasis on the Q3 CPI numbers on October 26 than before and could lead to a review of its “appropriate” current monetary policy at its next meeting on November 1.
 
There was also further indication that the Chinese economy is slowing as tight monetary policy and falling external demand take their toll. Q3 GDP came in at 9.1% y/y, down from the 9.5% recorded in Q2 and slightly below market expectations of 9.3% growth. So far the slowdown in the Chinese economy has been measured and reflecting that fact that the export-driven economy is not impervious to the global slowdown.
 
Post-data we heard numerous comments from the National Bureau of Statistics saying that China will maintain relatively fast growth despite the external slowdown with little chance of a second dip. It also said that China measures to curb inflation have taken noticeable effect with the inflation trend contained and likely to ease further in Q4. This was borne out by latest house price data which showed overall house prices across the country rising 3.5% y/y in September, slowing from August’s 4.1% according to Reuters calculations.
 
Other September data was better than expected with industrial production rising 13.8% y/y (13.4% expected) and retail sales up 17.7% y/y (17.0% expected).
 
Earlier this morning a government researcher at the National Development and Reform Commission (NDRC), China’s top economic planner, commented that China may ease policy towards the end of the year, likely starting with an increase in lending quotas, if the economic slowdown proves to be more serious.
 
Market reaction to the data was not particularly aggressive. The AUD slid a mere 20 points after the minutes but then rebounded only to fall a steeper 40 points after the China GDP numbers. Once that was accomplished we hovered mid-range for the rest of the session.
 
German officials were out in force Monday downplaying market expectations that this weekend’s EU summit would provide a final solution to the EU debt crisis, while warning that further restructuring may be necessary. Prior to the comments, markets were willing to extend the positive risk run that started last week but the rally ran out of steam and reversed smartly. An article in German magazine Der Spiegel suggesting France’s AAA rating could be in danger confirmed the near-term top (though note this morning Moody’s affirmed the rating with a stable outlook, citing the ongoing strength of the French economy).
 
US data also disappointed and added to the more gloomy outlook with the headline empire manufacturing index barely changed at -8.48 (-8.82 last and markets were looking for an improvement to -4.0) and the fifth negative reading in a row. Those looking for some positives will likely mention that orders stabilized and a modest improvement was seen in shipments and employment. Still, not a positive start to the series of regional manufacturing surveys for October.
September’s industrial production and capacity utilization numbers were in line with forecasts (though IP suffered a downward revision to August’s data). On Wall St, Q3 earnings from the financial sector were less than inspiring and, combined with diminished hopes out of Europe, equities gave back all the previous day’s gains – DJIA down 2.13%, S&P -1.94% and the Nasdaq -1.98%.

Economic Data Highlights

• US Oct. Empire Manufacturing out at -8.48 vs. -4.0 expected and -8.82 prior
• US Sep. Industrial Production out at +0.2%, as expected, vs. revised flat prior
• US Sep. Capacity Utilization out at 77.4% vs. 77.5% expected and revised 77.3% prior
• CA Q3 Business Outlook Future Sales out at 6.0 vs. 20.0 prior
• CA Q3 BOC Loan Officer Survey out at -26.9 vs. -49.6 prior
• China Q3 GDP out at +9.1% y/y vs. 9.3% expected and 9.5% prior
• China Sep. Industrial Production out at +13.8% y/y vs. 13.4% expected and 13.5% prior
• China Sep. Retail Sales out at +17.7% y/y vs. 17.0% expected and 17.0% prior
• China Sep. Fixed Asset Investment out at +24.9% y/y YTD vs. 24.8% expected and 25.0% prior

Upcoming Economic Calendar Highlights
(All Times GMT) 

• JP Machine Tool Orders (0600)
• UK CPI/RPI (0830)
• UK BOE’s Haldane to speak (0900)
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• US PPI (1230)
• US Net Long-term TIC Flows (1300)
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