Summary:

• Australian dollar catches a bid in the morning trying to resist the US dollar strength
• Australian retail sales surprise to the upside, services PMI slightly sub-par
• US indices make a U-turn on Thursday, Apple cross the trillion-dollar market valuation

The last trading day in Europe is beginning with the continued strength of the greenback, albeit taking into account the employment report scheduled for the afternoon one may suppose that USD bulls might decide to cash in on their recent positions at least to some extent. In early European trading the NZ dollar is losing the most ground being down 0.3% which seems to be related to risk-off. At the same time the Australian dollar is gaining the most against the buck being underpinned by solid retail sales numbers for June. Notice that we were offered a decent net exports reading earlier this week which combined with the encouraging data on retail sales implies quite robust economic growth during the second quarter (the data will be released at the beginning of September).

Australian retail sales beat expectations in June providing support for Q2 GDP growth. Source: Macrobond, XTB Research

Cutting to the chase, retail sales increased 0.4% in monthly terms exceeding the consensus placed at 0.3%. Looking at the whole quarter one may notice that Australian retailers enjoyed the best three months in a year suggesting that consumer spending could have managed to maintain decent growth momentum. It’s worth also mentioning that in real terms retail sales picked up 1.2% over the entire June quarter being the best outcome in a year too. The market consensus had assumed a 0.8% rise showing that expectations were easily beaten by a large margin. According to some calculations consumption may have added 0.6 percentage points to growth compared with a disappointing 0.2 percentage points during the first three months of the year. Even so, the market-implied probability of a rate hike in Australia does not need to impress market participant as it assigns sub-10% till the end of this year, and then 42% by June next year. While retail sales acted in favour of the Aussie one cannot say the same about services PMI which slipped in July to 52.3 from 52.7 bringing down the composite gauge to 52.3 from 52.9, but still in the expansion territory. On top of that, it needs to be added that Chinese services PMI made even a larger retreat coming in at 52.8 compared to 53.9 seen in June. As a consequence, the composite indicator slid to 52.3 from 53.

The Aussie is trying to bounce off its notable short-term support localized nearby 0.7360. A possible increase could reach as high as 0.7445. Source: xStation5

On the equity front one may spot that while European equities ended yesterday’s trading bleeding their US counterparts managed to resist bears’ strength. As a result the NASDAQ (US100 on xStation5) bounced substantially ending the day with a 1.25% gain. The SP500 (US500) added 0.5% while the Dow Jones (US30) stayed at its flat line. In turn, Chinese indices extended their declines on Friday illustrating that when it comes to capital markets the trade spat between the US and China is hurting much more the latter. At the end let us note that Apple’s market capitalization crossed $1 trillion yesterday being the first stock in history doing so.

Technically the SP500 (US500) drew a bullish candlestick on Thursday, and as a result the index managed to bounce back meaningfully. If this rally turns out to be sustained one may count on an increase toward 2880 points over the next days. Having said that, the July’s jobs report might give investors food for thought influencing their investment decisions. Source: xStation5