Australian retail sales remain weak; AUD suffers as a result

Today’s Asian session focused on the service sector PMIs with Australia reporting a slight improvement from last month to 48.8 but still heavily in contraction territory. China’s official non-manufacturing PMI was the exception with a jump to 59.6 from 57.0 last month but the HSBC equivalent told a slightly different story with a decline to 53.5 from 54.1.

Australia’s retail sales data for June affirmed the Reserve Bank of Australia's decision to keep rates unchanged yesterday with a disappointing number. Retail sales declined 0.1% on month, well below the +0.4% expected and in negative territory for the second straight month. On the trade front, June’s trade surplus was narrower than May’s with a flat performance by the export sector cutting the surplus to A$2.052 bln on the month. With no positives to be drawn from the data and interest rate markets that turned inverse with government yields below the prevailing cash rate for the first time since 2009, AUDUSD was thumped lower to the 55-day moving average at 1.0678 while AUDJPY moved to its lowest since 24 March.

As we head into Europe, Germany, Eurozone and the U.K. all report their service sector PMIs along with Eurozone retail sales. The U.S. session starts the run in to Friday’s non-farm payroll report with the ADP employment change, Challenger job cuts, factory orders and the ISM non-manufacturing reports.

With the U.S. debt ceiling issue apparently now behind us (the Senate voted for the plan and it was signed into law immediately by Pres. Obama), focus shifted back to the EU periphery again overnight with Spain and Italy now in the spotlight. Spanish debt spreads widened further putting some pressure on the EUR while the USD enjoyed another day in the sun.

AUD continued to struggle in the aftermath of the dovish RBA statement yesterday and slumped to two-week lows versus the resurgent dollar, yet the greenback suffered against the almighty CHF with the pair again falling to new record lows and EURCHF recording its biggest one-day decline since August 1989.

On the U.S. data front, personal spending was the weakest since late 2009, slipping into negative territory for the first time since September 2009 and adding to concerns that the U.S. economy is slowing rapidly. No doubt we will hear renewed talk of Federal Reserve stimulus and this week’s U.S. non-farm payroll release could be the catalyst for heightened chatter. We witnessed a rout on Wall St with the S&P falling 2.56% and heading into negative territory for the year as the 200-day moving average was convincingly broken amid broad-based selling with high turnover. The stalling economy also prompted a huge bond rally with 10-year yields sliding to nine-month lows of 2.61%. Despite this, USDJPY held up well with markets perhaps paying attention to accelerated jawboning on the JPY’s appreciation by Japanese authorities.

Economic Data Highlights
US Jun. Personal Income out at +0.1% vs. 0.2% expected and revised 0.2% prior
US Jun. Personal Spending out at -0.2% vs. +0.1% expected and revised +0.1% prior
US Jun. PCE Deflator out at 2.6%, as expected and unchanged from prior
SI Jul. PMI out at 49.3 vs. 50.0 expected and 50.4 prior
UK Jul. BRC Shop Price Index out at 2.8% y/y vs. 2.9% prior
AU Jul. AiG Performance of Service Index out at 48.8 vs. 48.5 prior
China Jul. Non-manufacturing PMI out at 59.6 vs. 57.0 prior
AU Jun. Trade Balance out at +A$2.052 bln vs. +A$2.2 bln expected and revised +A$2.699 bln prior
AU Jun. Retail Sales out at -0.1% m/m vs. 0.4% expected and -0.6% prior
AU China Jul. HSBC Services PMI out at 53.5 vs. 51.4 prior

Upcoming Economic Calendar Highlights
(All Times GMT)
GE PMI Services (0755)
EU PMI Services/Composite (0800)
UK PMI Services (0830)
EU Euro-zone Retail Sales (0900)
US MBA Mortgage Applications (1100)
US Challenger Job Cuts (1130)
US ADP Employment Change (1215)
US ISM Non-manufacturing (1400)
US Factory Orders (1400)