*Chinese monetary policy facing liquidity trap:
Amid pickup in discussion China is falling into a liquidity trap, concerns have centered around potency of PBoC’s open market operations. Commentary in Economic Information Daily discussed liquidity trap symptoms, including tendency of firms to hoard cash rather deploy into investment opportunities. However it argued despite these concerns, authorities needed to ensure liquidity was plentiful given global risks, a weak Chinese economy and capital outflow pressures. Advocated for supply-side reforms to rely more on fiscal policy and targeted industry policies to stimulate full recovery. Recall PBoC head of statistics Sheng Songcheng discussed this dynamic in weekend forum. Noted China needed proactive fiscal policy in coordination with monetary policy to address symptoms of liquidity trap.
*Moody’s put Turkey on review for downgrade after failed coup:
Turkey remains in spotlight after failed coup over the weekend, forcing Moody’s to put its Baa3 credit rating (lowest level of investment grade) on review for downgrade. Said Turkey’s slower-than-expected progress in materially advancing planned economic reforms, in the context of both weakening growth and external buffers, were already concerns but the failed coup will likely exacerbate challenges in all of these areas. Plenty of more sell-side commentary too. SocGen said Turkey’s national security remains the overarching issue now, entailing strongly negative spillovers onto the tourism sector and a detrimental effect on business confidence. On a cross asset basis, Morgan Stanley expects deteriorating macro fundamentals in H2’16 to pressure Turkish sovereign debt and widen credit spreads, while driving USD/TRY to 3.20 by year-end. It also expects continued dovish policies by the central bank.
*German and French firms take biggest share of ECB’s corporate QE:
Some details about the ECB’s corporate QE program filtering through. Reuters said German and French debt accounted for lion's share of its first batch of purchases, naming companies such as BMW (BMW-DE), Sanofi (SAN-FR) and BASF (BAS-DE). Cited data which shows the ECB has bought €10B worth of corporate bonds since 8-Jun, with the German and French central banks snapping up hundreds of bonds between them, outpacing other Eurozone peers. Added this reflects the geographical distribution of the European credit market, which is largely concentrated in Germany, France and the Netherlands. Noted this may also provide ammunition to critics of the program, who claim the ECB is simply providing cheap credit to large companies already enjoying low borrowing costs, but the ECB hopes money will eventually trickle down to smaller borrowers across the Eurozone.
*Sharp deterioration in German ZEW investor sentiment:
Fallout from Britain’s unexpected vote to leave the EU late last month starting to filter into the data. ZEW Center for European Economic Research said its index of investor and analyst expectations fell to (6.8) in July from +19.2 in June. This was well below the +9.0 consensus and lowest level since November 2012. Current conditions component fell to 49.8 from 54.5 in June. A measure of expectations in the Eurozone fell to (14.7) from +20.2. Survey was conducted between 4-Jul and 18-Jul. ZEW said in a statement that uncertainty about Brexit’s vote consequences for Germany was largely responsible for the substantial decline in sentiment. Bloomberg article pointed out UK is third-largest destination for German exports.
*UK inflation accelerates prior to Brexit vote:
Latest inflation data from the UK shows June CPI up 0.5% y/y versus consensus for 0.4% and compared with 0.3% rise in May. ONS said acceleration in prices due to rise in air fares and price of motor fuel due to oil price gains. Focus on data comes amid recent forecasts for acceleration in inflation as sterling weakness increased import prices. ONS said data was collected before EU referendum and the recent falls in sterling had no influence on prices. Inflation pick-up prior to EU vote likely to fan expectations of further price pressure in coming months. However, the BoE is widely expected to look through cost-push inflation related to sterling weakness, with focus on supporting demand. BoE has also given implied backing of sterling weakness, saying the adjustment was necessary, reflected fundamentals and acts as a shock absorber.
*Key Q2 earnings and revenue metrics:
Key Q2 earnings metrics little changed this week. According to FactSet, blended growth rate for S&P 500 EPS now stands at (5.2%), a bit better than the (5.5%) last Friday, which also matched expectations at the end of the quarter. With just over 10% of S&P 500 having now reported, 65% have beat consensus EPS expectations, just below the 66% seen at the end of last week and the 70% one-year average. In the aggregate, companies reporting earnings that are 4.4% ahead of expectations, better than both the 3.9% positive surprise rate last Friday and the 4.2% one-year average. Blended revenue growth rate is (0.6%), largely in line with (0.5%) last week. In addition, 56% of companies that have reported have beat consensus revenue expectations, above the 51% last and the 49% four-quarter average. In the aggregate, companies reporting sales that are 1% above expectations, better than one-year average of 0.0%.
*Sector performance fairly bunched:
No great read-throughs from sector price action from a macro standpoint. Materials fared worst with industrial metals under pressure across the board. Nothing specific, though RIO-US production update disappointed. Energy underperformed with oil weak again. Healthcare largely in line. Managed care hit by latest antitrust concerns, but JNJ-US and UNH-US both beat and raised. Consumer staples down with tape. PM-US miss the big drag. Consumer discretionary also in line. Retail lagged, but several restaurants (MCD-US, WEN-US, CMG-US) better. Tech in line. Some help from better-than-feared results from VMWUS and EMC-US (and Dell deal approved) and FFIV-US privatization speculation. NFLX-US hit on weaker subs. Industrials eked out small gain despite machinery weakness and disappointing GWW-US results/guidance. LMT-US led A&D higher following earnings. Financials higher even though banks little changed overall (mixed earnings takeaways). REITs outperformed.
*Netflix misses on subscribers:
NFLX-US under pressure on disappointing sub metrics. Reported Q2 domestic net adds of just 160K vs guidance for 500K. In addition, international net adds just 1.5M vs guidance for 2M. For Q3, company guided for domestic net adds of 300K vs a consensus of 774K. Also guided for international net adds of 2M vs 2.85M consensus. Company said gross additions were healthy and on target, but flagged elevated churn associated with heightened press coverage of “un-grandfathering” price increase. Added this dynamic may lead to a moderation in near-term membership growth. However, company pushed back against concerns about market saturation and competition. Reiterated long-term US membership target. More positive sell-side commentary revolved around revenue growth/profitability and upcoming set-top box integrations.
*Managed care names weaker:
Managed care group hit on Bloomberg report US Department of Justice poised to sue in order to block both CI-US / ANTMUS and HUM-US / AET-US mergers. Both high-profile transactions have faced criticism from the start, with consumer groups worried about higher premiums and healthcare providers concerned about lower reimbursements. Bloomberg report suggests regulators share concerns that the deals, which would compress five largest companies in the space into three, will harm customers. Article sources notes that asset sales, which have been proposed to help alleviate regulators’ concerns, are unlikely to sway antitrust officials. Final decision to sue could come this week. UNH-US holding up somewhat better after earnings beat and guidance raise; however some concern about weaker MLR on ACA losses.
*Market too complacent on policy normalization?:
Firmer batch of US economic data and lack of tightening of financial conditions following Brexit have generated some thoughts that market is too complacent on Fed policy normalization expectations. WSJ (Hilsenrath article) touched on this dynamic today. Noted Fed officials looking more confidently toward rate increase before year-end, possibly as early as September meeting. Added Fed could use July policy statement to highlight message that economy is on more solid footing than when central bank met in June (potentially via an upgrade to labor market assessment), setting stage for raising rates if data hold up in months ahead. Note that at the end of last week, Fed fund futures were only putting a 20% probability of a September tightening, while December stood at 37%.
*Housing starts beat:
Housing data came in ahead of expectations, though market reaction muted with economic calendar taking a backseat to first big day of Q2 earnings season. Housing starts up 4.8% to a 1.189M saar in June, ahead of 1.165M consensus and strongest since February. However, May did get revised down to 1.135M from 1.164M. Single-family starts up 4.4% in June (most since September), while multi-family starts increased 5.4%. Permits up 1.5% to a 1.15M pace that was largely in line with consensus. Single-family permits increased 1.0%, while multi-family permits were up 2.5%. Nothing particularly interesting in early sell-side takeaways. Housing underpinned by low mortgage rates, labor market traction and tight supply. Recent WSJ article discussed how local delays in building permits hindering supply.
*BoJ widely expected to do more next week:
Expectations into next week’s BoJ meeting extremely elevated. Latest survey from Reuters showed 23 of 27 analysts, or ~85%, predicted BoJ would further ease policy at July 28-29 meeting, when it is also due to release latest batch of long-term economic and inflation forecasts. One economist expects next easing in September, while two said they are looking for a move in October and one said central bank would ease again some time next year. According to survey, 80% said BoJ would ease via combination of measures such as pushing interest rates deeper into negative territory and increasing purchases of assets such as ETFs. Article did not discuss either backlash surrounding negative interest rate policy (NIRP) or technical constraints surrounding asset purchase program.
*EU’s top court’s ruling on bank rescues generates some debate:
Some debate surrounding ruling by European Court of Justice (ECJ) on bank rescues. The case, which was brought by a group of junior debt holders who wanted to recover losses from Slovenia’s December 2013 banking recapitalization, has been closely scrutinized given the current standoff between Italy and Brussels over a rescue plan for Italian banking sector. Bloomberg had a negative spin on the ruling. Noted ECJ said burden-sharing by shareholders and subordinated creditors as a prerequisite for European Commission to sign off on aid to an ailing bank is not contrary to EU law. More positive spin fromReuters, which noted court also said burden-sharing not a pre-condition for granting state support to a troubled ban. However, EU Competition Commissioner said ruling has no impact on talks with Italy over bank rescue plan. Also noted deal may be "quite close".
*Overbought conditions:
A number of technical strategists have been out with upbeat comments as of late, particularly in terms of both breadth and the bullish implications of a new high in the S&P 500 following a long pause. However, also some thoughts stocks may be near-term overbought. While MKM Partners (Krinsky) rebutted some high-profile bearish arguments in a note yesterday, it did point out that short-term sentiment and momentum do suggest some near-term weakness. In addition, Bespoke Investment Group Investment, which has also highlighted a favorable technical backdrop, noted late last week that the S&P 500 and all ten sectors are trading at overbought levels (ie more than one standard deviation above their 50-dmda). Added average one-week returns following past periods in which all ten sectors were overbought have been slightly below average.
*Fund manager survey shows continued rise in cash levels:
Latest BofA Merrill Lynch Global Fund Manager Survey showed cash levels pushed up to 5.8% in July from 5.7% in June, highest since November 2001 (and contrarian bullish). Added investor buying of protection against sharp decline in stock market at record high. Also highlighted first underweight position in equities in four years (though very marginal). Sentiment most negative surrounding Eurozone and Japan and UK. Also biggest underweight of banks since 2012. However, first US equity overweight position in 17 months and biggest EM overweight in two years. Pointed out that long quality stocks, long US/EU credit and short EU banks remain most crowded trades. Industrials overweight at two-year highs, while tech exposure saw biggest m/m jump in two years. “Helicopter money” expectations over next 12 months jumped to 39% from 27%.
*Cheap sterling may fuel interest for foreign takeovers:
The London Times reported that after yesterday's Softbank-ARM deal, M&A bankers have said British firms could find themselves besieged by foreign takeover bids as rivals take advantage of the cheap pound. It added that American, European and Japanese companies are thought to be the mostly likely to look at opportunities. Article highlighted that sterling is down 8.7% on a tradeweighted basis, 11.7% lower vs the dollar, 8% against the euro and 12.5% vs the yen. Some analysts have said the sterling fall has made UK assets look more attractive, though others have pointed out that the currency effect would not be the sole drivee. Other considerations include a more stable political backdrop.
*RBA minutes signal focus on jobs, inflation and housing:
While minutes indicated policy would be determined by upcoming data, RBA's tone tilted a little dovish. Noted available data for June quarter consistent with moderation in GDP growth. Said housing and labor market indicators had been mixed. Pointed out June home prices were little changed amid weaker housing credit growth. Added forward-looking labor indicators slightly weaker over recent months while underemployment remained elevated. Recall following July’s RBA meeting Aussie jobs data came in mixed. Officials also anticipated inflation remaining quite low for some time. Noted growth in Australis’ trading partners was below average while China’s may have eased further. Officials downplayed Brexit concerns, noting volatility following vote had since settled. Note that Q2 CPI is due on 27-Jul and CoreLogic may update on July home values later this month.
*ASX Limited (ASX):
ASX snaps eight-day winning streak Australian shares snapped an eightday winning streak following losses in resources stocks led by Rio Tinto and BHP Billiton. The S&P/ASX 200 Index fell 7.1 points or 0.1 per cent to close at 5451.3 points on Tuesday in another session defined by low volumes. Utilities stocks bucked the trend, rising 1.7 per cent in line with falls in the 10-year Australian Commonwealth government bond yield to 1.91 per cent. New Zealand’s S&P/NZX 50 closed at a fresh record high. Around the region, Japanese shares climbed amid continuing talk of fiscal and monetary stimulus, while China’s bourses fell. Syrah Resources, Western Areas, South32 and Alumina posted heavy falls in response to declines for oil, iron ore and gold overnight.
*Rio Tinto Limited (RIO):
Rio Tinto will have to lift its iron ore export rate over the next six months to achieve its full-year target, but rebounding commodity prices mean investors shouldn’t expect any nasty surprises from its financial results next month. After a weak March quarter, exports from Rio’s global iron ore operations were slightly below expectations for the June quarter as well, at 86.8 million tonnes. Analysts had expected closer to 88 million tonnes. The miner has vowed to ship 350 million tonnes of the bulk commodity in 2016 (including tonnes owned by joint venture partners) and now must ship more than 52 per cent of that total in the December half.
Iron ore mining is a wildly profitable game for Rio Tinto, but one of its joint venture partners didn’t find it so lucrative in 2015. An Australian subsidiary of Chinese steelmaker Sinosteel – Sinosteel Channar Pty Ltd – reported a $69 million loss for 2015 on its 40 per cent stake in the Channar Joint Venture. The joint venture gives the subsidiary a share of production from Rio’s Channar mine in the Pilbara.
Amid pickup in discussion China is falling into a liquidity trap, concerns have centered around potency of PBoC’s open market operations. Commentary in Economic Information Daily discussed liquidity trap symptoms, including tendency of firms to hoard cash rather deploy into investment opportunities. However it argued despite these concerns, authorities needed to ensure liquidity was plentiful given global risks, a weak Chinese economy and capital outflow pressures. Advocated for supply-side reforms to rely more on fiscal policy and targeted industry policies to stimulate full recovery. Recall PBoC head of statistics Sheng Songcheng discussed this dynamic in weekend forum. Noted China needed proactive fiscal policy in coordination with monetary policy to address symptoms of liquidity trap.
*Moody’s put Turkey on review for downgrade after failed coup:
Turkey remains in spotlight after failed coup over the weekend, forcing Moody’s to put its Baa3 credit rating (lowest level of investment grade) on review for downgrade. Said Turkey’s slower-than-expected progress in materially advancing planned economic reforms, in the context of both weakening growth and external buffers, were already concerns but the failed coup will likely exacerbate challenges in all of these areas. Plenty of more sell-side commentary too. SocGen said Turkey’s national security remains the overarching issue now, entailing strongly negative spillovers onto the tourism sector and a detrimental effect on business confidence. On a cross asset basis, Morgan Stanley expects deteriorating macro fundamentals in H2’16 to pressure Turkish sovereign debt and widen credit spreads, while driving USD/TRY to 3.20 by year-end. It also expects continued dovish policies by the central bank.
*German and French firms take biggest share of ECB’s corporate QE:
Some details about the ECB’s corporate QE program filtering through. Reuters said German and French debt accounted for lion's share of its first batch of purchases, naming companies such as BMW (BMW-DE), Sanofi (SAN-FR) and BASF (BAS-DE). Cited data which shows the ECB has bought €10B worth of corporate bonds since 8-Jun, with the German and French central banks snapping up hundreds of bonds between them, outpacing other Eurozone peers. Added this reflects the geographical distribution of the European credit market, which is largely concentrated in Germany, France and the Netherlands. Noted this may also provide ammunition to critics of the program, who claim the ECB is simply providing cheap credit to large companies already enjoying low borrowing costs, but the ECB hopes money will eventually trickle down to smaller borrowers across the Eurozone.
*Sharp deterioration in German ZEW investor sentiment:
Fallout from Britain’s unexpected vote to leave the EU late last month starting to filter into the data. ZEW Center for European Economic Research said its index of investor and analyst expectations fell to (6.8) in July from +19.2 in June. This was well below the +9.0 consensus and lowest level since November 2012. Current conditions component fell to 49.8 from 54.5 in June. A measure of expectations in the Eurozone fell to (14.7) from +20.2. Survey was conducted between 4-Jul and 18-Jul. ZEW said in a statement that uncertainty about Brexit’s vote consequences for Germany was largely responsible for the substantial decline in sentiment. Bloomberg article pointed out UK is third-largest destination for German exports.
*UK inflation accelerates prior to Brexit vote:
Latest inflation data from the UK shows June CPI up 0.5% y/y versus consensus for 0.4% and compared with 0.3% rise in May. ONS said acceleration in prices due to rise in air fares and price of motor fuel due to oil price gains. Focus on data comes amid recent forecasts for acceleration in inflation as sterling weakness increased import prices. ONS said data was collected before EU referendum and the recent falls in sterling had no influence on prices. Inflation pick-up prior to EU vote likely to fan expectations of further price pressure in coming months. However, the BoE is widely expected to look through cost-push inflation related to sterling weakness, with focus on supporting demand. BoE has also given implied backing of sterling weakness, saying the adjustment was necessary, reflected fundamentals and acts as a shock absorber.
*Key Q2 earnings and revenue metrics:
Key Q2 earnings metrics little changed this week. According to FactSet, blended growth rate for S&P 500 EPS now stands at (5.2%), a bit better than the (5.5%) last Friday, which also matched expectations at the end of the quarter. With just over 10% of S&P 500 having now reported, 65% have beat consensus EPS expectations, just below the 66% seen at the end of last week and the 70% one-year average. In the aggregate, companies reporting earnings that are 4.4% ahead of expectations, better than both the 3.9% positive surprise rate last Friday and the 4.2% one-year average. Blended revenue growth rate is (0.6%), largely in line with (0.5%) last week. In addition, 56% of companies that have reported have beat consensus revenue expectations, above the 51% last and the 49% four-quarter average. In the aggregate, companies reporting sales that are 1% above expectations, better than one-year average of 0.0%.
*Sector performance fairly bunched:
No great read-throughs from sector price action from a macro standpoint. Materials fared worst with industrial metals under pressure across the board. Nothing specific, though RIO-US production update disappointed. Energy underperformed with oil weak again. Healthcare largely in line. Managed care hit by latest antitrust concerns, but JNJ-US and UNH-US both beat and raised. Consumer staples down with tape. PM-US miss the big drag. Consumer discretionary also in line. Retail lagged, but several restaurants (MCD-US, WEN-US, CMG-US) better. Tech in line. Some help from better-than-feared results from VMWUS and EMC-US (and Dell deal approved) and FFIV-US privatization speculation. NFLX-US hit on weaker subs. Industrials eked out small gain despite machinery weakness and disappointing GWW-US results/guidance. LMT-US led A&D higher following earnings. Financials higher even though banks little changed overall (mixed earnings takeaways). REITs outperformed.
*Netflix misses on subscribers:
NFLX-US under pressure on disappointing sub metrics. Reported Q2 domestic net adds of just 160K vs guidance for 500K. In addition, international net adds just 1.5M vs guidance for 2M. For Q3, company guided for domestic net adds of 300K vs a consensus of 774K. Also guided for international net adds of 2M vs 2.85M consensus. Company said gross additions were healthy and on target, but flagged elevated churn associated with heightened press coverage of “un-grandfathering” price increase. Added this dynamic may lead to a moderation in near-term membership growth. However, company pushed back against concerns about market saturation and competition. Reiterated long-term US membership target. More positive sell-side commentary revolved around revenue growth/profitability and upcoming set-top box integrations.
*Managed care names weaker:
Managed care group hit on Bloomberg report US Department of Justice poised to sue in order to block both CI-US / ANTMUS and HUM-US / AET-US mergers. Both high-profile transactions have faced criticism from the start, with consumer groups worried about higher premiums and healthcare providers concerned about lower reimbursements. Bloomberg report suggests regulators share concerns that the deals, which would compress five largest companies in the space into three, will harm customers. Article sources notes that asset sales, which have been proposed to help alleviate regulators’ concerns, are unlikely to sway antitrust officials. Final decision to sue could come this week. UNH-US holding up somewhat better after earnings beat and guidance raise; however some concern about weaker MLR on ACA losses.
*Market too complacent on policy normalization?:
Firmer batch of US economic data and lack of tightening of financial conditions following Brexit have generated some thoughts that market is too complacent on Fed policy normalization expectations. WSJ (Hilsenrath article) touched on this dynamic today. Noted Fed officials looking more confidently toward rate increase before year-end, possibly as early as September meeting. Added Fed could use July policy statement to highlight message that economy is on more solid footing than when central bank met in June (potentially via an upgrade to labor market assessment), setting stage for raising rates if data hold up in months ahead. Note that at the end of last week, Fed fund futures were only putting a 20% probability of a September tightening, while December stood at 37%.
*Housing starts beat:
Housing data came in ahead of expectations, though market reaction muted with economic calendar taking a backseat to first big day of Q2 earnings season. Housing starts up 4.8% to a 1.189M saar in June, ahead of 1.165M consensus and strongest since February. However, May did get revised down to 1.135M from 1.164M. Single-family starts up 4.4% in June (most since September), while multi-family starts increased 5.4%. Permits up 1.5% to a 1.15M pace that was largely in line with consensus. Single-family permits increased 1.0%, while multi-family permits were up 2.5%. Nothing particularly interesting in early sell-side takeaways. Housing underpinned by low mortgage rates, labor market traction and tight supply. Recent WSJ article discussed how local delays in building permits hindering supply.
*BoJ widely expected to do more next week:
Expectations into next week’s BoJ meeting extremely elevated. Latest survey from Reuters showed 23 of 27 analysts, or ~85%, predicted BoJ would further ease policy at July 28-29 meeting, when it is also due to release latest batch of long-term economic and inflation forecasts. One economist expects next easing in September, while two said they are looking for a move in October and one said central bank would ease again some time next year. According to survey, 80% said BoJ would ease via combination of measures such as pushing interest rates deeper into negative territory and increasing purchases of assets such as ETFs. Article did not discuss either backlash surrounding negative interest rate policy (NIRP) or technical constraints surrounding asset purchase program.
*EU’s top court’s ruling on bank rescues generates some debate:
Some debate surrounding ruling by European Court of Justice (ECJ) on bank rescues. The case, which was brought by a group of junior debt holders who wanted to recover losses from Slovenia’s December 2013 banking recapitalization, has been closely scrutinized given the current standoff between Italy and Brussels over a rescue plan for Italian banking sector. Bloomberg had a negative spin on the ruling. Noted ECJ said burden-sharing by shareholders and subordinated creditors as a prerequisite for European Commission to sign off on aid to an ailing bank is not contrary to EU law. More positive spin fromReuters, which noted court also said burden-sharing not a pre-condition for granting state support to a troubled ban. However, EU Competition Commissioner said ruling has no impact on talks with Italy over bank rescue plan. Also noted deal may be "quite close".
*Overbought conditions:
A number of technical strategists have been out with upbeat comments as of late, particularly in terms of both breadth and the bullish implications of a new high in the S&P 500 following a long pause. However, also some thoughts stocks may be near-term overbought. While MKM Partners (Krinsky) rebutted some high-profile bearish arguments in a note yesterday, it did point out that short-term sentiment and momentum do suggest some near-term weakness. In addition, Bespoke Investment Group Investment, which has also highlighted a favorable technical backdrop, noted late last week that the S&P 500 and all ten sectors are trading at overbought levels (ie more than one standard deviation above their 50-dmda). Added average one-week returns following past periods in which all ten sectors were overbought have been slightly below average.
*Fund manager survey shows continued rise in cash levels:
Latest BofA Merrill Lynch Global Fund Manager Survey showed cash levels pushed up to 5.8% in July from 5.7% in June, highest since November 2001 (and contrarian bullish). Added investor buying of protection against sharp decline in stock market at record high. Also highlighted first underweight position in equities in four years (though very marginal). Sentiment most negative surrounding Eurozone and Japan and UK. Also biggest underweight of banks since 2012. However, first US equity overweight position in 17 months and biggest EM overweight in two years. Pointed out that long quality stocks, long US/EU credit and short EU banks remain most crowded trades. Industrials overweight at two-year highs, while tech exposure saw biggest m/m jump in two years. “Helicopter money” expectations over next 12 months jumped to 39% from 27%.
*Cheap sterling may fuel interest for foreign takeovers:
The London Times reported that after yesterday's Softbank-ARM deal, M&A bankers have said British firms could find themselves besieged by foreign takeover bids as rivals take advantage of the cheap pound. It added that American, European and Japanese companies are thought to be the mostly likely to look at opportunities. Article highlighted that sterling is down 8.7% on a tradeweighted basis, 11.7% lower vs the dollar, 8% against the euro and 12.5% vs the yen. Some analysts have said the sterling fall has made UK assets look more attractive, though others have pointed out that the currency effect would not be the sole drivee. Other considerations include a more stable political backdrop.
*RBA minutes signal focus on jobs, inflation and housing:
While minutes indicated policy would be determined by upcoming data, RBA's tone tilted a little dovish. Noted available data for June quarter consistent with moderation in GDP growth. Said housing and labor market indicators had been mixed. Pointed out June home prices were little changed amid weaker housing credit growth. Added forward-looking labor indicators slightly weaker over recent months while underemployment remained elevated. Recall following July’s RBA meeting Aussie jobs data came in mixed. Officials also anticipated inflation remaining quite low for some time. Noted growth in Australis’ trading partners was below average while China’s may have eased further. Officials downplayed Brexit concerns, noting volatility following vote had since settled. Note that Q2 CPI is due on 27-Jul and CoreLogic may update on July home values later this month.
*ASX Limited (ASX):
ASX snaps eight-day winning streak Australian shares snapped an eightday winning streak following losses in resources stocks led by Rio Tinto and BHP Billiton. The S&P/ASX 200 Index fell 7.1 points or 0.1 per cent to close at 5451.3 points on Tuesday in another session defined by low volumes. Utilities stocks bucked the trend, rising 1.7 per cent in line with falls in the 10-year Australian Commonwealth government bond yield to 1.91 per cent. New Zealand’s S&P/NZX 50 closed at a fresh record high. Around the region, Japanese shares climbed amid continuing talk of fiscal and monetary stimulus, while China’s bourses fell. Syrah Resources, Western Areas, South32 and Alumina posted heavy falls in response to declines for oil, iron ore and gold overnight.
*Rio Tinto Limited (RIO):
Rio Tinto will have to lift its iron ore export rate over the next six months to achieve its full-year target, but rebounding commodity prices mean investors shouldn’t expect any nasty surprises from its financial results next month. After a weak March quarter, exports from Rio’s global iron ore operations were slightly below expectations for the June quarter as well, at 86.8 million tonnes. Analysts had expected closer to 88 million tonnes. The miner has vowed to ship 350 million tonnes of the bulk commodity in 2016 (including tonnes owned by joint venture partners) and now must ship more than 52 per cent of that total in the December half.
Iron ore mining is a wildly profitable game for Rio Tinto, but one of its joint venture partners didn’t find it so lucrative in 2015. An Australian subsidiary of Chinese steelmaker Sinosteel – Sinosteel Channar Pty Ltd – reported a $69 million loss for 2015 on its 40 per cent stake in the Channar Joint Venture. The joint venture gives the subsidiary a share of production from Rio’s Channar mine in the Pilbara.
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