Business research

Markets Today: Retail, Wages and RBNZ

After a negative start, US stocks managed to end the day in positive territory, supported by better than expected earnings reports from retailers.


Today’s Podcast


  • European and US stocks extend recent gains
  • Better-than-expected reports from U.S. retailers overshadow dire housing data
  • Global core yields reverse yesterday’s decline. The UST curve is flattening
  • CAD Outperforms, Strong Core CPI Keeps BoC Rate Hike Expectations High
  • Positive risk backdrop and rising US yields weigh on JPY
  • The AUD was little changed, after briefly trading below 70c
  • Upcoming: Japan Trade, AU WPI, RBNZ, UK CPI, US Retail sales, FOMC Minutes

Overview of events

United Kingdom: unemployment rate (%), June: 3.8 vs. 3.8 exp.
GE: ZEW Survey Expectations, Aug: -55.3 vs. -52.7 exp.
United States: Building permit (k), July: 1674 against 1640 exp.
United States: Housing starts (k), July: 1446 against 1527 exp.
United States: Industrial production (m/m%), July: 0.6 vs. 0.3 exp.
Sales: CPI (y/y%), July: 7.6 against 7.6 exp.
CA: Core CPI (avg, y/y%), July: 5.3 vs. 5.0 exp.
NZ: GDT Dairy Auction Price Index (% change): -2.9 vs -5.0

Moving forward, nothing can stop me – M People

After a negative start, US stocks managed to end the day in positive territory, supported by better than expected earnings reports from retailers. Walmart expanded its customer base, moving up the market. Global core yields reversed yesterday’s decline, with the UST curve showing a bearish flattening bias. Most G10 currencies little changed, CAD outperforms after strong Core CPI readings keep BoC rate hike expectations elevated while positive risk backdrop and rising yields Americans weighed on the JPY.

US stocks had a shaky overnight session, starting the day on a negative note after mixed US economic data weighed on sentiment (more below), but then came better-than-expected earnings reports from Walmart. and House Depot, sparked a reversal with the S&P rebounding 0.65% after an initial drop near -0.5%. A tech slide late in the day pared earlier gains, with the benchmark ending the day up 0.19%, a third straight day of positive returns. The NASDAQ was at -0.19% and the Dow at 0.44%. Meanwhile, EU stocks extended their recent gains, with the Stoxx 600 index closing up 0.2% and at its highest level in more than two months. Miners outperformed with utilities and telecommunications.

Investors embraced Walmart’s earnings numbers that topped the market’s trimmed earnings forecast and slightly improved full-year guidance . The U.S. chain’s same-store sales rose 6.5% year-over-year in the quarter ended July 29, higher than the 6% growth forecast in last month’s update . Walmart also raised its operating profit forecast for the full fiscal year ending in January 2023. Food inflation is attracting more affluent customers while lower-income customers have remained loyal. Home Depot also posted better-than-expected results even as the US housing market showed more signs of slowing.

July US housing starts plunged 9.6% to 1,446K, below consensus 1,527K while building permits fell 1.3% to 1,674K, above consensus , 1640K. The decline in housing starts was mainly attributable to the basic single-family component, down 10.1%, a fifth consecutive monthly decline. Overall, this is a story of homebuilders responding to a sharp drop in demand. Pantheon Economics notes that the same should be expected given that this data lags sales, which lags mortgage applications, which are down 30% from their peak in December and continuing to decline. In contrast, US industrial production was stronger than expected at 0.6% m/m in July, driven by a 6.6% rise in motor vehicle production, on reducing bottlenecks that allow a return to more normal production levels. Excluding the automotive sector, manufacturing output rose 0.3% in July, which was not enough to offset the full 0.7% drop in May and June.

Despite BoE rate hikes and high inflation, the UK labor market remains very strong amid a lack of supply (not helped by Brexit) and an economy that has remained resilient, at least until ‘now. The June report showed robust job growth and an unchanged unemployment rate of 3.8%, as well as higher wage inflation, with average weekly earnings of 4.7% year-on-year (excluding premiums). It should be noted that the data may show some crack in labor demand with job vacancies falling by 19.8,000 in the May-July quarter, the first quarterly decline since August 20. . Still very high at 1.274m, 0.479m above March 20 before pandemic levels and +32.1% y/y. The BoE’s debate remains whether the Bank will view the strength of average weekly earnings as problematic or whether the erosion of real income is sufficient to bring inflation back to a halt.

Global core yields reversed yesterday’s decline, helped by the positive backdrop in equities. In Europe, 10-year Bund yields rose 7 basis points to 0.97% and, after the UK jobs data, 10-year gilt yields jumped 11 basis points to 2.13 %. Meanwhile in the US, the 2-year yield led to a bearish flattening of the curve, up 8 basis points to 3.265%, while 10-year UST yields gained 2 basis points to 2, 8090%.

In the currency markets, the CAD was the best performer overnight, rising 0.4% on stronger than expected core CPI readings and despite a 3% drop in oil prices . CPI inflation in Canada showed the expected cooling in the headline rate, down to 7.6% year-on-year, but the core measures continued to rise, with the three key measures all rising to a range from 5% to 5½%, adding to the possibility of more “anticipated tightening from the Bank of Canada, as the 2-year bond rate rose 13 basis points on the day. Meanwhile, lower oil prices (Brent now $92.70) was largely attributed to expectations that the Iran deal, which would involve an additional 1.3 million barrels of oil per day, might be approved, at least based on EU comments, although that decision still largely depends on the United States and Iran agreeing to the terms.

Rising US yields and relatively buoyant backdrop for equities make the JPY the underperformer in the G10, down around 0.75% at ¥134.23 while growth-friendly currencies such as the AUD and NZD were little changed. Overnight the AUD briefly traded below 70c but opens the new day at levels similar to yesterday’s open at 0.7023. The NZD traded below 0.6320 overnight, but higher risk sentiment and a reversal in the USD sees the NZD trading just below 0.6350.


  • This morning, Japan receives trade figures for July as well as machinery orders for June (Core +1% vs -5.6% previous). Another large trade deficit is expected (-1914.9 billion yen) in the context of Japan’s external dependence for its energy needs, a drop in oil prices during the month was partially offset by an average depreciation of the yen of 136.05 yen (USD/JPY) in July compared to 130.35 yen in June.
  • AU: Later in the morning (11:30 AEST), attention should turn to Australia with the release of T2 Salary data . Our economists note that Australian wage growth is likely to continue to lag the rapid tightening of the labor market, with further acceleration over the coming quarters signaled by leading wage and labor cost indicators. work and the higher increases in salaries awarded in perspective from the third quarter. We expect wage growth of 0.7% q/q and 2.6% y/y (consensus 0.8%/2.7%). This is in line with the RBA’s August SoMP forecast and would be consistent with our view of the RBA rising 50 basis points in September.
  • NZ: RBNZ meets today with MPS due out 12 noon AEST. In line with market expectations, our BNZ colleagues are expecting a 50 basis point hike taking the official cash rate (OCR) to 3%, an OCR track similar to that released in May (with a spike of about 4%) and warmongering messages from the Bank.
  • UK: Later today, the UK releases inflation figures for July. Headline CPI is expected to accelerate from 9.4% to 9.9% year-on-year and is expected to accelerate further from the Q4 rise in the standard variable electricity and gas tariff of £1,971 at around £3,449, with a further increase coming in the new year. Core CPI is expected to rise by a tick to 5.9% year-on-year.
  • EZ: Updated estimate of Eurozone Q2 GDP, released later today, is unlikely to be revised from the initial value of 0.7%/4.0%
  • WE: The US gets retail sales figures with the overall figure expected up 0.2% m/m, while the base figure is seen to be a bit stronger at 0.3% m/m. MBA mortgage applications are also available tonight. The FOMC minutes released early tomorrow morning should reinforce the hawkish tone of recent Fed speakers that inflation is far from over.

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