Market wrap

Risky currencies pared Asian session losses, but most other markets continued to consolidate. The data flow was mixed, Eurozone PMI disappointing but Philadelphia manufacturing beating depressed expectations. There was Fed-speak from hawk Kocherlakota who appeared to switch to a pro-QE stance, from Lockhart who also supported QE, and from dove Rosengren who spoke characteristically. The S&P500 is currently little changed (-0.1%), while the CRB commodities index is down 0.5% (Brent oil +1.9%, copper -1.0%). US 10yr treasury yields bounced in NY from 1.72% to 1.79%, influenced by the US data above. Demand at the 10yr inflation-linked auction was sub-average although the awarded real yield did make a record low. Eurozone peripheral yields were contained inside the recent range. The Spanish 3yr and 10yr auctions went well.

The US dollar index (DXY) is around 0.5% higher. EUR extended losses to 1.2920, assisted by the PMI data, but rebounded in NY to 1.2973. USD/JPY probed 78.022 before bouncing in NY to 78.36. AUD reversed from its post-China PMI slump, bouncing from early London’s 1.0368 to 1.0447. NZD similarly bounced from 0.8208 to 0.8295, the earlier GDP surprise helping it outperform the majors on the day. AUD/NZD continued to break down, falling from 1.2640 to 1.2580.


Economic wrap

US initial jobless claims fall 3k to 382k last week but the prior week was revised up by 3k, leaving in place a clear uptrend in claims from early August’s 364k low. That is consistent with some renewed deterioration in the labour market. US Philly Fed factory index rose from –7 to –2 in Sep. Still, that is its fifth month of contraction, compared to just three months in 2011 that had readings below 0. The detail showed orders rise from –6 to +1, but shipments fell from –11 to –21 and jobs were little changed just a few ticks either side of –8 in the last two months. US leading index fell 0.1% in Aug, its third decline in five months; in 2011 the index fell in just two months (Aug and Sep last year). Six of the ten components were negative in August, compared to just three in July.

Euroland advance composite PMI down from 46.3 to 45.9 in Sep. The services PMI drove the composite PMI down to its lowest since the 08/09 recession. Also the Q3 average composite PMI edged down from Q2’s 46.3 to 46.2. Our view is the Q2 GDP contraction of –0.2% was lighter than implied by the PMIs in Q2, and we expect a steeper decline in Q3 GDP of up to –0.6% (that forecast is subject to revision as hard data on retail/industrial/export sectors become available). The country detail showed the French PMIs down sharply in September, offsetting some recovery in the German surveys.

UK retail sales down 0.2% in Aug, consistent with anecdotes that the Olympics did not add much of a boost to spending. Clothing recovered Jul’s 1.3% fall rising 1.6% but household goods were down 2.7% after a 2.4% July fall and nonstore retailing dived 6.7% as internet shopping lost out to watching the Games, presumably. A separate report from the CBI showed industrial new orders rising from –21 to –8 in Sep, the twelfth month running that the series has indicated contraction.


Market outlook

AUD and NZD Outlooks: Scheduled event risk today is negligible, with only NZ’s migration data locally – a minor NZD mover at best. The US calendar tonight is bare. Fed dove Pianalto and hawk Bullard speak after the NY close.

NZD/USD 1 day: Higher above 0.8300 as long as 0.8250 holds.

NZD/USD 1 month: Higher, with 0.8470 the next major target (29 Feb high).

NZ 2yr swap yield 1 day: Opening today 1bp higher at 2.71%.

NZ 2yr swap yield 1 month: Higher to 2.85%, then back to 2.60%.

AUD/USD 1 day: Higher to 1.0465 as long as 1.0410 holds.

AUD/USD 1 month: Higher towards 1.0600 (year-old trend resistance).