Markets were largely stable overnight. Adopting a wait-and-see posture ahead of the key US and EZ central bank meetings on Wednesday and Thursday, the S&P500 drifted sideways and is currently unchanged from the previous close. Weaker data had no material impact, Eurozone confidence surveys and Dallas regional manufacturing activity lower than expected. Of curiosity interest was the launch of an investigation into whether ECB-chief Draghi’s simultaneous membership of the G30 group constitutes a conflict of interest, according to Der Spiegel. Commodities were mixed, the CRB index up 1.0% but oil down 0.4%, copper down 0.2%, and corn up 2.9%. US 10yr treasuries pared the previous day’s losses, yields falling from 1.57% to 1.49%. Spain’s 10yr yield fell 13bp but Italy’s rose 7bp.
The US dollar index (DXY) was steady around 82.80. EUR initially slipped from 1.2298 to 1.2225 but recovered during the London afternoon to 1.2264. USD/JPY slipped from 78.40 to 78.12. AUD rose from 1.0455 to 1.0508 – a three month high - in London. NZD failed to follow suit, only firming to 0.8100 which was below its domestic session peak of 0.8113. AUD/NZD consequently rose from 1.2940 to 1.2990.
US Dallas Fed factory index drops from 6 to –13 in July. That was well below Westpac’s bottom of the range –2 forecast (we had the only sub 0 forecast) and reflected respondent concern about the economy rather than their own activity levels, which were lower but still positive for production, orders, shipments and jobs.
Euroland business surveys fall sharply. The business climate index dipped from –0.95 to –1.27 in July, the same level it fell to in October 2008, after the Lehmans collapse six weeks earlier. The economic confidence index which combines consumer and business surveys fell from 89.9 to 87.9 in July, which is midway between the Sep and Oct 2008 readings - clearly these surveys are sensing something calamitous is afoot. These surveys would not reflect the last few days’ change of mood of course, since the Draghi et al pledges to do whatever it takes to preserve the euro. Today Draghi was reportedly meeting with the Bundesbank chief (trying to change his anti bond buying stance) and the US Treasury Secretary (for tips on how to deal with political leaders who can’t make decisions except when they make the wrong ones).
UK housing/credit/retail data weak across the board. Hometrack reported their first monthly house price decline for the year in July. The fall was just 0.1% but it left the annual pace at –0.5% yr. New mortgage approvals dropped from 51k to 44k in June - the two public holidays for the Jubilee may have been a factor but on the other hand May did not benefit from one less holiday than usual. Mortgage outstandings fell £355mn in June, their first decline in a year, and May’s gain was revised down by £300mn. But consumer credit grew by £600mn in June, down on May’s £800mn perhaps because of the bad weather which also afflicted April. Meanwhile M4 money supply growth slowed to –5.2% yr, its slowest on record. And back to the consumer, the CBI retail survey for July had reported sales drop from 42 to 11, with the July survey catching a lot of the recent bad weather and June boosted by the Jubilee holidays.
AUD and NZD Outlook: Market expectations of ECB action on Thursday should continue to provide support but beyond that will depend on deliverance or disappointment . Locally we have Australian credit aggregates and building approvals, and NZ business confidence (only occasionally a market mover) today.
NZD/USD 1 day: The loss of momentum argues for a brief pullback to the 0.8000- 0.8030 area before pressing on past 0.8110.
NZD/USD 1 month: 0.7750.
NZ 2yr swap yield 1 day: Opening today 1bp lower at 2.77%.
NZ 2yr swap yield 1 month: Towards 2.50% if the Fed and ECB disappoint this week.
AUD/USD 1 day: The mini-rally since 25 July is losing steam but it’s premature to call a top. Above 1.0500 indicates an extension towards 1.0600.
AUD/USD 1 month: 1.0100.