Stocks and Copper Sell Off; RBA Neutral Hold Echoes the Central Bank Party Line

Adding to Monday’s large cap US index losses, of 0.1%-0.8% US index futures are down 0.2-0.4% this morning. In Europe, the Dax is up 0.3% and the FTSE is down 0.6%.

Asia Pacific markets sold off overnight. Hong Kong dropped 1.9% to a new 52-week low, while Shanghai lost 1.6%, Tokyo lost 1.3%, and Sydney lost 0.9%. With China-sensitive markets under pressure, Copper dropped another 0.9%.

Interestingly this selloff occurred on a day when China economic news was positive as the private Caixin Services PMI was above 50 in expansion territory and above expectations. The UK had a similar result, while other European countries Service PMI reports tended to be above expectations but below 50. US ISM Service PMI (street 52.0) is due at 10:00 am EST. The next big economic report for China is trade numbers due early Thursday morning.

Concerns about the health of China’s economy were mentioned in the Reserve Bank of Australia’s statement overnight as a potential risk for Australia’s economy. The RBA held interest rates steady which was expected after it raised its benchmark Cash Rate last month.

In its statement, the RBA gave a mixed outlook on inflation mentioning that consumer and goods inflation continues to decline, wage inflation may be peaking, and services inflation remains problematic. Governor Bullock and the board also mentioned that high inflation is a problem for the public, that it is more important to get inflation down before it gets entrenched and that the effects of previous rate hikes have not been fully felt yet. Overall the tone suggested that while the RBA may be close to or done raising interest rates, rate cuts are unlikely any time soon. This sentiment has been common from central banks lately so don’t be surprised if we see the Bank of Canada tomorrow and the Fed next week singing of the same song sheet.

The Australian Dollar is down 0.9% on this news. Currency markets are otherwise quiet this morning with Gold consolidating Monday’s losses near $2,040/oz. Energy markets are mixed with WTI and Brent Crude Oil down 0.9% and Natural Gas up 1.3%.