Central Bank to Increase Inflation Targets?
Asian equities failed to take the positive lead from their US counterparts with the Nikkei 225 once again weighed on by a firmer JPY
• JPY was the main focus for FX markets overnight after USD/JPY broke below 101.00 to print its lowest level in a month
• Looking ahead, highlights include UK and US CPI, German & EU ZEW Survey Expectations, US Industrial Production, API Crude Oil Inventory Report and NZ Employment Change
Asia failed to take the impetus from the record closes on Wall St. with the major regional indices in negative territory. Nikkei 225 (-1.1%) underperformed as a firmer JPY dampened investor sentiment, while ASX 200 (-0.2%) traded in a subdued fashion with participants cautious ahead of the expected release of the worst ever financial report from index heavyweight BHP Billiton after market. Chinese markets conformed to the lackluster tone with choppy trade seen in the Hang Seng (-0.1%), while investors booked profits in the Shanghai Comp (-0.5%) after yesterday’s stock connect-inspired outperformance.
People’s Bank Of China set CNY mid-point at 6.6305 (Prev. 6.6430) and injected CNY 80bln via 7-day reverse repos.
EUROPE & UK
UK MSCI July property returns declined by 2.4% Y/Y, while the capital values figure declined 2.8% Y/Y which represents the biggest contraction since March 2009 and that the UK property market is now formally in a recession.
JPY strengthened by nearly a point with USD/JPY retreating below 101.00 to print its lowest level in a month as the safe-haven benefited amid risk-aversion in the region, with the selling in the pair contributing to USD weakness. Movements in currency pairs was largely range-bound due to the summer lull and as participants remained tentative ahead of the FOMC minutes this week, while the RBA meeting minutes also failed to spur any significant reaction in AUD/USD.
RBA minutes from August 2nd meeting stated most recent data on prices and labour costs confirmed that domestic cost pressures had been subdued. The central bank reiterated that a rising AUD complicates an economic transition and sees inflation remaining around 1.5% over this year, before increasing to between 1.5%-2.0% by the end of its forecast period.
WTI crude futures pulled off its upwards trajectory to trade slightly lower overnight, however does maintain a firm grasp above the USD 45/bbl level. Gold (+0.5%) outperformed the metals complex with the precious metal underpinned by safe-haven flows and a softer USD, while copper prices were subdued amid the absence of risk-appetite in Shanghai.
Fed's Williams, (Neutral, Non-Voter) stated that central banks may need to increase inflation targets and there may be a call of new fiscal policies to boost US interest rates.
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