Markets were subdued, the US fiscal deal-induced rally appearing to have run its course. There was little fresh news to provide direction, even the earlier announcement that global banking regulators would relax proposed liquidity rules failing to boost US banking stocks (down 0.9%). The S&P500 is currently down 0.6%, capping a 4-day rally worth 5.0%. Commodities were slightly weaker, Brent oil -0.;1%, copper -4%, and gold -0.7%. Iron ore nudged 0.4% higher to October 2011 levels, extending a 78% gain since September. US 10yr treasury yields consolidated between 1.88% and 1.92%. Eurozone yields saw little change, although Italy’s 10yr rose 8bp after former PM Berlusconi said he may become the finance minister in the next government.
The US dollar index (DXY) fell slightly. EUR rose from 1.3017 to 1.3120, boosted by an advisory report that the ECB had raised the bar for further rate cuts. USD/JPY’s spectacular rally since September (+14.6%) stalled amid profit-taking, pushing the pair from 88.40 to 87.64. AUD eked a narrow 1.0468-1.0507 range. NZD, on the other hand, pressed higher to 0.8368. AUD/NZD fell from 1.2640 to 1.2540.
No US data to report.
Canadian Ivey PMI rose from 47.5 to 521.8 in Dec, just a partial recovery of the 10.8 pt drop recorded in Nov.
Euroland Sentix investor confidence jumped from –16.8 to –7.0 in Jan. That is the steepest of the five consecutive gains since September (and the highest reading since global economic and financial market confidence nosedived in July 2007), buoyed initially by the ECB’s OMT announcement and most recently by the progress achieved by US policy-makers in averting the full impact of the fiscal cliff. The expectations component rose 13.5 pts while current conditions improved 6.7 pts.
Basel 3 liquidity coverage ratio compliance delayed 4 years to 2019. Under this rule banks would be required to hold enough liquid assets to survive a 30 day credit crunch. But the 2015 deadline was seen as too soon, threatening to bring on a credit crunch according to the likes of ECB’s Draghi. Under the new guidelines, 60% of the LCR obligations need to be met in 2015, then an additional 10% each year after till 100% in 2019.
Euroland producer prices slowed from 2.6% yr to 2.1% yr in Nov, further unwinding the August 2011 spike from 1.6% yr to 2.7% yr.
UK house prices rose 1.3% in Dec according to the Halifax, for a –0.3% yr annual pace.
NZD and AUD outlook: Locally we have Australia’s trade balance to watch today, Westpac forecasting a slightly larger deficit than consensus.
NZD/USD 1 day: Any correction today should be limited to the 0.8300-0.8325 area.
NZD/USD 1 month: The positive trend since May remains intact, targeting 0.8470 and beyond. Below 0.8150 breaks the trend.
NZ 2yr swap yield 1 day: Opening today 2bp lower at 2.76%.
NZ 2yr swap yield 1 month: Breaking above 2.80% towards 3.00%, supported by improving NZ data.
AUD/USD 1 day: Yesterday’s stall should extend today to 1.0450.
AUD/USD 1 month: Remains inside a 17-month triangle, and needs to break above 1.0600 to confirm an upward breakout.