Australia

Australian GDP came in slightly above expectations, increasing at an annual rate of +2.1% for the 12 months to June, despite very weak household consumption. GDP growth has slowed from +2.4% to March, consistent with the RBA’s forecast for a continued softening of the domestic economy into the end of this calendar year before a gradual recover through 2024 and 2025.

The RBA left the cash rate at 4.1% in its August, reiterating that inflation was still too high and further tightening may be needed to bring inflation back to its target range of 2-3%. Inflation unexpectedly eased down to 4.9% in July, led by falling prices for fresh produce and fuel.

Westpac-Melbourne Institute Index of Consumer Sentiment came in at 81.0 in August, ahead expectations of 80.7 with the RBA’s decision to hold rates steady for a second month in a row doing little to quell worries about higher borrowing costs. The unemployment rate rose to 3.7% in July, above the expected 3.6% and underscoring the RBAs prediction that the labor market is near a turning point. Retail sales increased by 0.5% in July, topping market estimates of 0.3%, while annual sales rose 2.1%.

Composite PMI edged down to 48 in August, with services activity falling at a faster pace than manufacturing output. The NAB business confidence index rose to 2 in July with wholesale, construction and recreation & personal services accounting for most of the upswing.  

The trade surplus narrowed to $8.04 billion in July below market forecasts of $10 billion.

Global

Record temperatures in August drove food prices higher with soybeans, olive oil and rice just three of the products affected by shortages and price hikes. While seasonal prices fluctuations are usual, the exceptionally hot and dry summer experienced in the northern hemisphere has caused poor harvests and many crops to fail.

The war in Ukraine also continues to impact the global food supplies as the UN brokered deal for safe passage of Ukrainian grains via the Black Sea collapsed with Russia pulling out of the agreement. While some grain is still being exported via inland rivers, it takes longer and is more expensive than via sea.  

US

The US economy grew at an annualized rate of 2.1% in 2Q23, ahead of the first quarter's expansion of 2.0%.

Annual inflation rose to 3.2% in July, just shy of the expected 3.3%.

The US economy added 187,000 jobs in August, more than market expectations of 170,000. This is the third month of sub 200,000 jobs growth and coupled with the increase in unemployment  to 3.8%, suggests that the year of successive rate rises by the Fed is working to get inflation under control and avert a recession. Consumers remain tentative about the outlook ahead with the consumer sentiment falling from 71.6 in July to 69.5 in August. Retail sales in July increased 0.7%, beating the 0.4% forecast, with the annual rate increasing 3.2%. The S&P Global Composite PMI fell to 50.4 in August, with services activity weak and the contraction in manufacturing deepening.  

The trade deficit widened less than expected to US$65 billion in July, from a downwardly revised US$63.7 billion in June, with China accounting for US$24 billion of this figure.

Euro Zone

The Eurozone economy grew by 0.6% in 2Q23, easing from a 1.1% expansion in the previous period. due to the large drop in real incomes and surging interest rates.

Annual inflation remained steady at 5.3% in August, above the expectations of 5.1%. Unemployment stayed at the record low of 6.4% for July, matching the market forecast.

Consumer confidence dropped to -16 in August, as households were more pessimistic about both their own and the wider economic outlook.

Retail sales dropped 0.2% in July, below market expectations of - 0.1%, with the annual rate down 1.0%, ahead of the anticipated  -1.2%.

The Composite PMI dropped to 46.7 in August, with the biggest contraction in services activity since November 2020. PPI dropped 0.5% in July, broadly in line with expectations, with the annual rate falling 7.6%. This can be attributed to the decrease in energy prices.

UK

The Bank of England increased the cash rate by 25bps to 5.25% in August, the 14^th consecutive rise.  The Bank came under renewed pressure to raise interest rates again in September after wages jumped more than expected in June, boosted by a one-off payment to NHS workers.

Annual inflation slowed to 6.8% in July, matching market expectations, mainly due to a sharp fall in fuel prices. This was mirrored in annual PPI which fell be 0.8% in July, below the market expectations.  

The unemployment rate increased to 4.2% in June and  above market expectations of 4.0%.

Consumer confidence rose to -25 in July as easing inflation reduced pressure on household spending sentiment. Retail sales fell 1.2% in July 2023, worse than market forecasts of a 0.5% fall, as sales declined for both food and non-food, reflecting the impact of wet weather and cost pressures. Annual sales fell 3.2%, compared the expected -2.1%.  

The composite PMI index fell to 48.6 in August with both services and manufacturing activity declining.

China

The unemployment rate was rose to 5.3% in July, up from June’s 16 month low of 5.2%.  

Annual Retail sales grew 2.5% in July, down from 3.1% in June and falling short of expectations. Both consumer and business confidence are flagging as the post pandemic recovery has stalled and many believe that policymakers have fewer good options to fight the downturn than in the past.

The Caixin/S&P Global Services PMI fell from 54.1 in July to 51.8 for August, the lowest reading since the pandemic lockdowns in late 2022. The Composite PMI declined to 51.7, adding to the recent series of negative signals for the country’s future demand for Australian mining commodities.

China lifted anti-dumping tariffs on Australian barley in a move that points to improving bilateral relations and would alleviate supply concerns after Russia suspended a humanitarian corridor used to deliver key Ukrainian grains to global markets.

Japan

Japan’s 2Q23 GDP was slightly below expectations, coming in at 1.3% for the quarter, which may give further justification for the BOJ to relax its monetary stimulus.

The annual inflation rate was unchanged at 3.3% in July, notably higher than the market forecasts of 2.5%,

The unemployment rate rose unexpectedly to 2.7% in July, defying market forecasts of no change from the 2.5% in June.

The consumer confidence index in dropped to 36.2 in August, below forecasts of 37.5.  Retail sales rose 2.1% in July, with the annual rate rising 6.8% which exceeded forecasts.

The composite PMI came in at 52.6 in August with the fastest rise of services activity in three months offset by weakness in manufacturing production.

Currencies

The Australian dollar (AUD) continued to descend over the month of August, closing -1.1% lower in trade weighted terms to 60.6, depreciating against all four referenced currencies in this update.

Volatility over the course of the month continued to be primarily influenced by weaker economic indicators from China, further eroding investor conviction in China's growth trajectory. In addition, relative US dollar strength predominantly stemming from the appreciation of the USD/CNY mid-month added additional drag to the AUD.

Relative to the AUD, the US dollar (USD) led the pack in August, appreciating by 3.8%. Conversely, the Japanese Yen (JPY) was the laggard of the month, albeit appreciating in relative terms by 1.5% against the AUD. Year-on-year, the AUD remains behind the Pound Sterling (GBP), Euro (EUR) and USD by -13.4%, -12.5% and -5.6% respectively, and has now fallen behind the JPY by -1.0%.