Early Morning Call: risk assets climb as USD retraces
Europe is expected to start the day up after gains across Wall Street and an encouraging GDP number out from Japan.
APAC overview
The Nikkei rose 2.31% overnight, after Japan's economy grew more than initially reported in the second quarter (Q2). Gross domestic product (GDP) expanded 3.5% in the second quarter year-on-year (YoY), stronger than the preliminary estimate of annualised 2.2% growth, and better than a median market forecast for a 2.9% gain.
Private consumption grew 1.2%, revised up from an initial estimate of a 1.1% increase. Capital spending rose 2%, also revised up from a preliminary estimate of a 1.4% rise.
In Australia, trade surplus shrank by more than expected in July as exports of iron ore and coal dropped by 15% and 17% respectively, while imports jumped 5.2%.
Central Banks
The ASX 200 also rose sharply after Reserve Bank of Australia (RBA) governor, Philip Lowe, said the RBA Board was not on a pre-set path and was aware rates had already risen sharply. "We are conscious that there are lags in the operation of monetary policy and that interest rates have increased very quickly, and we recognise that, all else equal, the case for a slower pace of increase in interest rates becomes stronger as the level of the cash rate rises."
Yesterday, the vice chair of the Federal Reserve (Fed), Lael Brainard, reiterated the central bank's priority is still making sure that inflation is controlled. While she is aware of the increasing threat the Fed policy poses to economic growth, "monetary policy will need to be restrictive for some time to provide confidence that inflation is moving down" to the Fed's 2% target.
Also yesterday, the Bank of Canada (BoC) hiked its policy rate to 3.25% from 2.50%, as expected. Rates are now above the BoC's neutral range, but the bank still signalled its tightening campaign was not yet done. "Given the outlook for inflation, the Governing Council still judges the policy interest rate will need to rise further," the central bank said in a statement. "As the effects of tighter monetary policy work through the economy, we will be assessing how much higher interest rates need to go to return inflation to target."
At Lunchtime, European Central Bank (ECB) policymakers are set to deliver another bumper hike today. Economists seemed divided earlier this week, between 50 or 75 basis points (bps). It looks like a hike of three quarters of a percentage point is now expected by a majority of economists.
Commodities
Oil prices are rebounding modestly this morning, after losing as much as 5% during yesterday’s session.
The API reported an increase for crude oil stocks of 3.65 million barrels, while analysts predicted a draw of 733,000 barrels, as the Department of Energy released 7.5 million barrels from the Strategic Petroleum Reserves.
The API also reported a fall in gasoline inventories this week of 836,000 barrels, while distillate stocks saw an increase of 1.83 million barrels.
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