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Morning Report
US consumer confidence rose to 56.9 in Aug
Wed, Aug 27 2008, 10:18 GMT
by Westpac Institutional Bank Team
News and views
USD surged on poor German data but trimmed its gains thereafter as oil prices rose and US data were mixed. While US Aug consumer confidence beat consensus, the -15.9% y/y print on June house prices was near expectations and the 515K for new home sales weaker than forecast. NYMEX crude oil dipped below $113/bbl at one point but rallied to sit around $116/bbl in late NY as oil workers began to be evacuated from the Gulf of Mexico as Hurricane Gustav builds strength. US equities posted minimal gains. The New Zealand dollar largely ignored broad USD movement, chopping around 0.6900/40 in London before rallying above 0.6970 on macro account buying.
AUD/USD lost about 25 pips in IFO-related collateral damage but was about flat in the end, sitting at 0.8550 near the NY close.
EUR/USD sank a full cent to 1.4600 on Germany’s Aug IFO survey of business sentiment sank to 94.8 from 97.5 vs consensus of 97.2. Buyers emerged below 1.4600 however (low 1.4570) as the pair recovered to 1.4540/50.
USD/JPY was little changed overall at 109.60 late NY but did see a short-lived dip to 109.15.
The minutes of the 5 Aug FOMC meeting showed that members generally agreed that the next move in interest rates would be up, but the timing would depend on economic and financial market developments. As noted in the 5 Aug statement, there was “significant concern” about inflation, with some members concerned that ‘core’ inflation may not moderate in 2009 as hoped. However, many officials were also concerned about the potential for more market turmoil, especially in light of the mortgage agencies’ recent woes. The statement points to more tough talk on inflation from the Fed, but no action in the near future.
US consumer confidence rose to 56.9 in Aug, steering well clear of the 50.9 low in June and the 47.3 low recorded in the 1991/92 recession. With gasoline prices falling sharply in the last month, expectations of inflation a year ahead fell from 7.5% to 6.7%. These figures reinforce the idea that recent consumer woes are the result of a cost shock – largely driven by oil prices – which has seen confidence slump but actual spending hold up. Within the detail of the survey, the jobs sentiment net balance continued to slide, consistent with a further upswing in the unemployment rate.
US new home sales rose 2.4% in July, beating forecasts for a fall, though downward revisions to previous months meant that the level of sales was still lower than expected. The continued slide in sales and the backlog of unsold homes reinforces the gloomy outlook for homebuilders. Separately, the Case-Shiller measure of US house prices fell 15.9% in the year to June, though the pace of the monthly declines has slowed significantly in the last three months.
US Richmond Fed index was unchanged at -16 in July, against expectations of a rise and bucking the trend of improvements in other regional manufacturing surveys.
Japanese corporate services prices unchanged at 1.3%yr in July. The monthly change was -0.1%, driven by a sharp fall in ship chartering services (-9.8%). This item has been one of the major inflationary sources in the year-to-date.
German GDP growth was confirmed at -0.5% in Q2, following the outsized 1.3% rise in Q1. The details showed domestic demand down 1.0% due to weak consumption, plunging investment and only a small contribution from government. The trade balance made a positive contribution, but only through a sharp drop in real imports.
German Ifo survey was weaker again in Aug, falling from 97.5 to 94.8. Both current conditions and expectations were softer, and the fall was widespread across sectors.
Outlook
NZD/USD should keep finding buyers on dips but we like AUD/NZD as local markets count down to the expected RBNZ rate cut on 11 Sep.
Published on Wed, Aug 27 2008, 10:18 GMT
USD traded softer to start the week as US stock prices tumbled
Tue, Aug 26 2008, 08:19 GMT
by Westpac Institutional Bank Team
News and views
USD traded softer to start the week as US stock prices tumbled and despite better than expected housing sales data, though a late squeeze trimmed losses and London’s holiday of course ensured poor liquidity. Financial stocks were mostly weak but with some striking exceptions. Lehman Bros sat 5% lower in late trade after Korea’s Financial Services Commission said a state-owned institution such as KDB should be cautious about foreign acquisitions. The failure of another small bank, Kansas-based Columbian Bank, also unnerved investors. But the GSEs posted gains well over 10% in the final hour on Wall St. The New Zealand dollar was rebuffed several times around 0.7090 and then looked soggy around 0.7040/45.
AUD/USD extended its late Asia bounce as far as 0.8690 amid broad USD selling but retreated to 0.8630/35.
EUR/USD rallied through 1.4800 on several occasions but could not extend, slipping to a more comfortable 1.4750.
USD/JPY set a firmer direction than other major pairs, sliding from near 110.00 in London to as low as 109.05 and recovering only modestly thereafter.
US existing home sales rose 3.1% in July. Existing home sales rebounded from the all-time low recorded in June, though some of the rise will be at the expense of new home sales, released tonight. Foreclosures now account for at least a third of sales, and the backlog of unsold homes increased to a new high of 11.2 months of supply. The median sale price slipped to a -7.1% yoy pace.
The IMF has trimmed its forecasts for world economic growth, according to an unnamed source. In a note prepared for next weekend’s G20 meeting, The IMF forecasts world growth of 3.9% this year, down from 4.1% in their official forecasts published last month.
UK markets closed for summer bank holiday.
Outlook
NZD should be range-bound to a little firmer near term, after recent NZ data fell short of the gloomiest scenarios. We are neutral on NZD TWI but NZD/USD should find buyers on dips.
Published on Tue, Aug 26 2008, 08:19 GMT
USD/JPY ground up from 109.00 to flicker above 110.00 in late NY
Mon, Aug 25 2008, 06:48 GMT
by Westpac Institutional Bank Team
News and views
A nearly $7 slide in NYMEX crude oil prices and a not entirely coincidental equity rally (DJIA +198pts) helped USD Index rise 0.8% from London into the NY close. The dollar was also boosted by a news report that Korea Development Bank was considering investment in Lehman Bros (some reports suggested buying the whole company). The S&P 500 Financials Index rose 3.1%. The dollar softened slightly on Fed chairman Bernanke’s wary tone on the continuing “financial storm”. The New Zealand dollar steadily lost ground vs USD, from 0.7180 in the London morning to close the week at 0.7088.
AUD/USD shed about a cent at the same time, finishing at 0.8665, not far off its lows. The 0.8650 area found buyers as it did on Thursday.
EUR/USD ratcheted down from 1.4869-80 to a 1.4758 low, finishing at 1.4793.
USD/JPY ground up from 109.00 to flicker above 110.00 in late NY.
US Fed chief Bernanke kicks off Jackson Hole symposium. In his address “Reducing Systemic Risk” he described the past year as “one of the most challenging economic and policy environments in memory”.
Bank of Japan minutes outline new communication vehicles. The Bank will release statements even when there has been no change in policy; the semi-annual outlook forecast horizon will be extended by a further year; and they will be updated quarterly with information on the distribution of views. Otherwise, the minutes were low key, other than the interim assessment of the Outlook projection. The board judged that activity was weaker than projected and prices had been stronger than projected.
Euroland industrial orders down 0.3% in June. Not a big fall, but still the fourth decline in five months, and enough to pull the annual pace of decline down to –7.4% yr. In other news, the current account remained deeply in deficit in June, at €8.2bn. At this rate, Europe could record a full-year deficit, although lower energy import prices in H2 2008 might yet prevent that.
UK GDP growth revised down from 0.2% to nothing in Q2. Private consumption fell 0.1%, investment was down 5.3% and both exports and imports fell. GDP growth would have been negative were it not for inventory accumulation.
Outlook
NZD should be range-bound to a little firmer near term, after recent NZ data fell short of the gloomiest scenarios. We are neutral on NZD TWI but NZD/USD should find buyers on dips.
Published on Mon, Aug 25 2008, 06:48 GMT
US Philly Fed index improved to –12.7 in Aug
Fri, Aug 22 2008, 05:55 GMT
by Westpac Institutional Bank Team
News and views
The US dollar see-sawed in London but its direction became clear in the New York session – down. US investors took a dim view of the reports that Lehman Bros had failed to secure fresh investment from Korea and China.
Commodities were snapped up once more, with the CRB index up 3.3% in afternoon trade. Crude oil sprang back to life after drifting around $116.50/ bbl, surging through $121/bbl for the first time since 7 August.
The New Zealand dollar added a cent from its 0.7103 London low to start the day just above 0.72. AUD/USD followed broad USD sentiment, falling as far as 0.8650 in London before rallying strongly to 0.8790 as commodities surged.
EUR/USD slipped back from 1.4820 on soft German manufacturing data to as low as 1.4743 in uncertain London trade but then established a firm rally to as high as 1.4897. USD/JPY’s biggest moves were in Asia, but it did lose about another 30 pips overnight to 108.55.
US Philly Fed index improved to –12.7 in Aug, with shipments and jobs the components that were most improved, albeit still declining. Also the prices measure dipped to a 3 month low – a further indication that producer prices will tumble in August.
The US leading index fell 0.7% in July, mainly due to plunging building permits which added 0.4 ppts to the June result but subtracted 0.5 ppts from July, due to the new building code introduced in NY on July 1.
Jobless claims and the weaker stockmarket also weighed heavily on the index. Consumer expectations were the biggest positive, reflecting the improvement in sentiment now that gasoline prices are falling. The signal from the index is subdued re growth prospects, but not as weak as it was earlier this year.
US initial jobless claims fell 13k to 432k last week, but they remain distorted by the impact of changed claiming rules that have been well publicised and so taken advantage of by new and existing claimants. That said, the recent run-up in continuing claims looks to be at least partially genuine and the Labor Dept spokesman has said that “an increase in firings” was a contributory factor. But we just can’t be precise about it.
Canadian inflation rose to 3.4% yr in July, mainly due to soaring gasoline prices, though there was some offset from lower automobile prices, which also helped constrain the core rate to 1.5% yr (below the 1-3% target mid-point) for the fourth month running.
Euroland advance PMIs. Both the services and factory PMIs held well below 50 for the third month running in August, a strong signal that Euroland GDP growth will contract slightly in Q3, on top of Q2’s 0.2% pull-back from Q1’s growth spurt.
UK retail sales up 0.8% in July, but given the large swings in May-June and the continued slippage in the annual growth rate, the underlying story remains subdued. Also, business investment fell 1.9% in Q2, weak enough to confirm our view that GDP growth will be revised down from 0.2% to 0.1%; indeed a stalled Q2 is now possible (Q2 revisions are due tonight).
Outlook
The NZD continues to be aided by a quiet domestic calendar and some trimming of short positions after recent NZ data beat the gloomiest scenarios. NZD/USD should extend its recovery, but we are more neutral on the overall trade-weighted index.
Published on Fri, Aug 22 2008, 05:55 GMT
Japanese June all−industry activity index fell 0.9%
Thu, Aug 21 2008, 05:58 GMT
by Westpac Institutional Bank Team
News and views
In a session devoid of US data, the US dollar looked to equity and oil prices for inspiration, which ultimately left it little changed. Oil was most lively, whipping around between $112.61/bbl and $117.03/bbl but at $115 in late New York time was up only modestly overall. The Dow Jones eked out modest gains near the close, despite another disastrous day for the mortgage agencies: Freddie Mac -26% and Fannie Mae -29% as investors prepared for the worst.
Like the USD, the New Zealand dollar gyrated without conviction, trading as high as 0.7139 in London, briefly dipping below 0.7090 in NY but recovering to 0.7120.
AUD/USD traded within an 0.8674-0.8744 range, sitting around 0.8725 in NY, eyeing broad USD moves and the (related) oscillations in gold.
EUR/USD slipped below 1.4680 at one point, with inevitable gloomy comments on European growth, but rebounded to 1.4740/50.
USD/JPY met reliable sellers above 110 (again), easing to 109.80, with equities too resilient for deeper losses.
Japanese June all-industry activity index fell 0.9%. The decline in the index reflects broad-based weakness across the manufacturing, construction and tertiary sectors. The June decline follows three consecutive rises from March to May. For Q2 overall, the index fell 2.2%. If we adjust that by the GDP deflator, we get back to -0.6%, the same outcome as the preliminary Q2 GDP estimate. That gives us some confidence that GDP will not be revised heavily in the second estimate.
The minutes to the Bank of England’s August policy meeting showed a three-way split in the vote, the same as in July, with one each for an immediate hike and cut, and the other seven preferring policy on hold.
The hiker argued that a pre-emptive move could help to anchor inflation expectations and prevent upside risks to inflation from materialising; the cutter argued that the slowdown in the economy would be so steep that inflation would substantially undershoot the 2% target in 2010.
This result was a little more hawkish than we expected, following the seemingly more dovish quarterly inflation projections last week. As such, our call for a September Bank of England rate cut now looks unachievable, but we still expect rates to be cut before the year is out.
The UK August CBI industrial trends survey found weaker orders, output and exports, and encouragingly, a pull-back in prices, adding to the growing body of evidence that suggests UK inflationary pressures might be peaking.
Canadian retail sales rose 0.5% in June. This was weighed down by a fall in car sales, but boosted by a 4.2% jump in gasoline sales due to higher prices. In other news, the Canadian leading index was flat in July, as it was in June.
Outlook
The trend in the NZD should be flat to slightly higher over the near term, with a quiet domestic calendar and some help from trimming of NZD shorts after recent NZ data beat the gloomiest scenarios. We are neutral on the NZD trade-weighted index.
Published on Thu, Aug 21 2008, 05:58 GMT
The US dollar remained in favour in early overnight trade
Wed, Aug 20 2008, 06:18 GMT
by Westpac Institutional Bank Team
News and views
The US dollar remained in favour in early overnight trade, with the US July PPI even higher than expected. But equity losses extended, ultimately pulling the USD lower, about -0.7% from the NY morning highs. Financials came under renewed pressure, with nerves over ex-IMF chief economist Rogoff’s latest comments, arguing that “the worst is yet to come”, including bank failures and saying shareholders of the mortgage agencies “should lose all their money.” A squeeze higher in oil and gold prices also didn’t help the USD.
The New Zealand dollar tracked firmly higher in offshore trade, to as high as 0.7154 in the NY afternoon. The kiwi’s performance against the other majors suggests some profit-taking on long-held shorts.
AUD/USD chopped around 0.8640 to 0.8695 in London, then squeezed a little higher in NY in sympathy with the euro. NZD/AUD strengthened due to the firm kiwi, steadying around 0.8190 in late NY.
EUR/USD looked underwhelming in European trade, ranging from 1.4638 to 1.4710 before its short-covering squeeze sent it to 1.4790.
USD/JPY looked fairly soggy throughout London trade, slipping below 110.00 and showing little inclination to rally, given the Dow Jones opened 70pts lower and got worse.
US PPI jumped 1.2% in July, reflecting the tail end of the commodity price boom but also unexpected strength in core factory price pressures, as well as core input and intermediate prices. The surprise was the 0.7% jump in the core measure. It reflected a 1.4% jump in auto prices charged to dealers, and 0.8% for light trucks (which might help explain why auto sales are slumping), a 0.1% rise in clothing prices, and a way above trend 0.8% increase in capital equipment prices (which make up nearly 40% of the core rate). Even though the headline PPI will be falling sharply from next month, if these core pressures persist, recent above trend rises in the core CPI might persist too, and that will be of particular concern to many at the Fed.
US housing starts/permits down 11%/18% in July. The double digit falls in housing starts and permits were as expected. Recall that a July 1 building code change in NY saw developers scramble to get building approved and commenced before that date. Hence multiple starts/approvals in the northeast rose 103%/115% in June and fell 30%/63% in July. Activity will have been pulled forward not just from July but from August and beyond too so we should expect ongoing weak headline data in the months ahead. But abstracting from this distortion, single family starts and permits (not impacted by the code change) fell to yet new multi-decade lows in July.
German ZEW improves from –63.9 to –55.5 in Aug. The ZEW expectations survey of German analysts and economists posted a partial bounceback in August, which we suspect reflects the recent depreciation of the euro, the less hawkish ECB, lower oil prices and the gains on the stockmarket over the past month. But the current measures continued to tumble, consistent with the fall in GDP growth we saw in Q2 and may well see repeated in Q3.
Outlook
The trend in the NZD should be flat to slightly higher over the near term, with a quiet domestic calendar and some help from trimming of NZD shorts after recent NZ data beat the gloomiest scenarios. We are neutral on the NZD TWI.
Published on Wed, Aug 20 2008, 06:18 GMT
The US dollar wandered in tight ranges with an eye on commodities
Tue, Aug 19 2008, 06:38 GMT
by Westpac Institutional Bank Team
News and views
The US dollar wandered in tight ranges with an eye on commodities, overall pressing a little higher late in New York for modest gains. These came despite a poor start to the week on Wall Street, where the Dow Jones traded down about -200pts late, weighed by the governmentsponsored mortgage agencies and other financials. Fannie Mae and Freddie Mac both sank more than 18% to fresh lows after Barron’s claimed shareholders would be wiped out if Treasury was forced to bail out the GSEs. Oil prices were more helpful to the USD, with NYMEX losing about $2 from its test above $115/bbl.
The New Zealand dollar was little changed overall, trading to a 0.7162 high in London but fading to the 0.7100 area during NY trade.
AUD/USD mostly bumped around 0.8700-40 but as US equity losses picked up steam in the NY afternoon, slipped below 0.8680.
EUR/USD chopped around mostly from 1.4690 to 1.4750, heading to the NY close below 1.4700.
USD/JPY traded tight ranges, again meeting sellers in the mid-110s (including US names selling EUR/JPY), easing back to the figure.
US NAHB homebuilders’ activity survey unchanged at 16 in Aug.
That is still the equal low point in the multi-decade history of this series.
Euroland trade deficit widens to €3bn from in June, reflecting a decent 1.4% rise in exports which was swamped by a price-driven 3% surge in imports. Despite the last two monthly deficits, because import prices have risen so sharply, it is likely that net exports were still positive in real terms in Q2, which implies that the fall in Euroland GDP growth was driven by domestic factors. We’ll get more detail on Q2 GDP in early Sep.
UK house prices down 2.3% in Aug. The monthly decline in the Rightmove estate agents’ network index was the steepest yet this year, although the 4.8% yr pace of annual price decline is less steep than that shown by the major lenders’ house price data.
Japan’s Ministry of Economy, Trade and Industry has drafted legislation that would exempt from taxes the dividends that domestic companies receive from foreign affiliates in which they hold stakes of 25% or more, in a bid to get firms to send the money they earn abroad back to Japan. Retained earnings at overseas affiliates have been on the rise, with a METI survey showing that they totalled a record 17.2 trillion yen in the 2006 fiscal year.
Outlook
NZD could be range-bound near term, with a quiet domestic calendar and some help from trimming of NZD shorts after recent NZ data fell short of the gloomiest scenarios. We have switched our short NZD TWI stance to neutral for now.
Published on Tue, Aug 19 2008, 06:38 GMT
The Australian dollar hit its lows in the London morning
Mon, Aug 18 2008, 06:55 GMT
by Westpac Institutional Bank Team
News and views
An extension of the rout in (most) commodities plus unthreatening US economic data helped USD consolidate its London morning gains, albeit in sometimes whippy trade. Hedges against a weak dollar were further unwound, including platinum -8%, silver -10% while gold steadied after a dip as low as $773/oz. NYMEX oil fell as low as $111.34/bbl but bounced late to close little changed vs late Asia at $113.77. Equities posted modest gains. The New Zealand dollar was a clear out-performer, aided by unwinding of AUD/NZD longs, gaining a full cent to 0.7062.
The Australian dollar hit its lows in the London morning and in rollercoaster trade, gained about 30-40 pips to 0.8662 at the NY close.
EUR/USD resumed its decline, trading as low as 1.4659, its weakest point since 20 February.
USD/JPY was utterly range-bound in the mid-110s after its 75 pip rally in Asia- Pacific trade Friday.
US NY Fed index 3.8 in Aug. The NY Fed index headline question on business activity posted an 8 pt gain to its highest since January this month but the detail in the report painted a weaker story, with new orders falling 11 pts and shipments down 14 pts (and both turning negative). Employment rose 2 pts but remained in negative territory. The only obvious bright spot was the jump in the six month view on activity but this part of the survey is typically volatile with little demonstrated predictive value. The out-performance of the business activity responses might reflect factory bosses’ optimism that lower gasoline prices will help the economy.
US UoM consumer sentiment rises from 61.2 to 61.7 in Aug, building only slightly upon its solid July bounce, though the breakdown showed expectations rising at the expense of current sentiment. Even with the last two monthly gains, this confidence measure is still below where it was in the 1990s recession and close to the lows of the early 1980s slump. In August, inflation expectations fell sharply, although it was the turn of one-year out expectations this month, after longer term expectations fell in July.
US industrial production rose 0.2% in July, and manufacturing was even stronger at 0.4%, boosted by a further rise in auto output which might still be related to the end of the strike in late May which had impacted on GM. Auto output strength is unlikely to be sustainable given the weak state of sales. Business equipment output also picked up in July, though we expect this is more likely a reflection of export demand rather than domestic spending strength.
US TIC data showed lower long term capital flows into the US in June, due to net selling of stocks and lower bond purchases. This was in June when the US dollar was still under pressure; in July the dollar stabilised and in August it strengthened rapidly, so the next few months of TIC data should provide interesting (though backward looking) insight into what flows drove that appreciation.
Canadian manufacturing shipments up 2.1% in Jun. Another solid looking rise in shipments although once again it is mostly due to higher prices rather than volumes. Auto sales were a little softer than StatCan’s guidance for “relatively unchanged” in June, falling 1%. Their guidance this month for July is once again for “relatively unchanged” sales.
Outlook
NZD could be range-bound near term, with a quiet domestic calendar and some help from trimming of NZD shorts after recent NZ data fell short of the gloomiest scenarios.
Published on Mon, Aug 18 2008, 06:55 GMT
USD/majors traded quietly in London until the US data
Fri, Aug 15 2008, 06:44 GMT
by Westpac Institutional Bank Team
News and views
USD/majors traded quietly in London until the US data. The combination of higher inflation and elevated jobless claims sparked a bout of dollar selling on stagflation fears, as equity futures swung into the red. However, this proved fleeting, with renewed weakness in commodity prices and a bullish report from Goldman Sachs helping restore confidence that the USD recovery is not spent. NYMEX oil fell as much as $4/bbl at one point, partly undermined by oil billionaire Boone Pickens’ prediction of $100-110/bbl near term (previously he was very bullish). The New Zealand dollar squeezed as high as 0.7059 10min after the US data but had retreated to 0.6990 by late NY.
The Australian dollar followed the pattern of most others, rebuffed ahead of AUD/USD 0.8800 and bumping around 0.8710 in late NY.
EUR/USD flickered to a 1.4952 high but by NY lunchtime hit lows around 1.4780, despite ECB’s Stark’s attempts to play down Eurozone recession fears.
USD/JPY mostly pushed higher from 109.50 but ran out of steam ahead of 110 as the US equity rally cooled from as much as +180pts on the DJIA to about +65pts late NY.
US CPI up 0.8% in July. The CPI posted another sharp jump in July, mostly due to a further 4.1% jump in gasoline prices and a well above trend 0.9% rise in food prices. The 5.6% yr annual rate was stronger than expected and is the highest since late 1990 but it will fall sharply in the last five months of this year. Food and gasoline prices started to fall in July but the survey timing missed much of that. More concerning was the second consecutive solid 0.3% rise in the core CPI. In July rents slowed but auto prices rose further, and education posted another above trend gain, and was joined by recreation. These two normally benign components make up 15% of the core CPI. On top of these factors, apparel prices roared up 1.1% (very strong given that annual apparel price inflation is only 0.8% yr). Some of these gains are probably a function of the weaker US dollar boosting import prices. On the soft side, medical care was once again below trend with a minimal 0.1% gain.
US initial jobless claims fell 10k to 450k last week but yet again we can’t draw firm conclusions from the data about what’s really happening in the job market because the Labor Dept has not been able to quantify the impact of changed claiming rules that have been well publicised and so taken advantage of by new and existing claimants. That said, the recent run-up in continuing claims looks to be at least partially genuine and the Labor Dept spokesman did say that “an increase in firings” was a contributory factor. But we just can’t be precise about it.
Japanese tertiary activity index falls 0.8% in June, underscoring yesterday’s weak Q2 GDP figures. The result followed a 0.2% decline in May and was against market expectations of a 0.3% contraction.
Euroland GDP fell only 0.2% in Q2 but national data suggest Q1 will be revised lower when the more detailed report is published on September 3. Leading indicators point to at best flat growth in Q3. Also, July CPI inflation was revised down from the 4.1% flash estimate to 4.0%, and core inflation eased to 1.7% yr. This combination of stalled/slipping growth and peaking inflation will help pave the way for an eventual rate cut from the ECB. We don’t expect a move before Q1 next year but do expect Trichet’s tone in the September 4 press conference to be slightly more dovish.
Outlook
We see some further downside for NZD TWI but will re-assess after New Zealand’s June retail sales data today.
Published on Fri, Aug 15 2008, 06:44 GMT
The Australian dollar followed a similar pattern
Thu, Aug 14 2008, 06:06 GMT
by Westpac Institutional Bank Team
News and views
USD/majors seesawed in London/NY, struggling with lukewarm US retail sales, equity losses and a bounce in oil prices to ultimately only post convincing gains against GBP. By late NY, cable sat about 3 cents lower (1.8700 area) as markets digested the BoE’s dovish/pragmatic quarterly report. NYMEX oil futures leapt $2/bbl to $115.70/bbl on news of the largest weekly decline in gasoline inventories since Oct 2002 then extended to above $117 before easing to the low $116s by late NY. Most financial stocks fell heavily as the DJIA opened lower and stayed negative throughout. The New Zealand dollar traded wide ranges, wandering from 0.6918 to 0.7001 in London then driving up to 0.7040 in late NY.
The Australian dollar followed a similar pattern, rallying late as yen crosses recovered.
AUD/USD traded as low as 0.8637 in London but sat nearer 0.8755 in NY. EUR/USD had a very whippy offshore session, but finished NY about where it left Asian trade, around 1.4920.
USD/JPY drifted in the high 108s then pressed up to 109.50 as carry trades enjoyed some NY afternoon buying.
US retail sales fall 0.1% in July, weighed down by a further decline in auto sales, which shaved 0.5 ppts off the July growth pace. Back revisions (June higher but April lower) were mostly offsetting. Ex auto sales rose 0.4%, with higher gasoline prices contributing just 0.1 ppts of that. Hence our preferred measure of core retailing, ex autos & gas, was up just 0.3% in July, and the gradual downtrend in the rate of growth of this measure from 1.1% three months prior is a fairly clear indication that the impact of the tax rebate cheques (posted between late April and July) is already starting to fade.
US business inventories rose a solid 0.7% in June despite a fall of 0.1% in the retail component. But with much of the increase due to energy prices (which lifted wholesale stocks 1.1% in June) there are no real implications for Q2 GDP revisions. Also, Import prices rose 1.7% in July with the survey capturing the early month peak in oil prices, although the weak US$ at the time was also apparent in the 0.7% rise in non-fuel import prices. From August, import prices should start to fall as lower oil prices and the stronger dollar begin to impact.
Japanese Q2 GDP weaker than expected at -0.6%qtr. That compares to the revised 0.8% rate recorded in Q1. There are a number of downside surprises in this release. Residential and non-residential investment both declined, with the former result being contrary to the momentum of recovery from last year’s policy induced dip. Public investment was brutally weak at -5.2% in the quarter (-19.3% saar) pushing overall public demand down 0.2ppts. Private consumption was down 0.5%, subtracting 0.3ppts. Exports were pretty close to our expectations but import volumes were stronger, leaving a zero contribution, down from +0.4ppts in Q1.
The UK jobs market continues to soften. Unemployment has now posted back to back 20k+ gains for the first time since the early 1990s recession; the household survey jobless rate jumped 0.2 ppts for only the second time this decade; earnings growth slowed for the third month running; and employment growth in Q2 slowed to just 20k from 159k in Q4 last year and 117k in Q1.
The Bank of England’s quarterly inflation report showed the CPI rising further in the short-term but then falling to a little below the 2% target in two years’ time, and continuing to fall further beyond that. This is on the basis of market rate expectations for about flat rates prior to the report. The Bank’s central projection for growth is for it to fall to 0% yr in the first half of 2009 (i.e. stagnation) and BoE Governor King openly acknowledged the prospect of a technical recession in the press conference (“one or two negative quarters are a possibility”). He ascribed downside risks to the growth outlook but upside risks to the below target inflation forecast. Markets immediately moved to price in lower BoE rates. Westpac’s view is that the BoE could cut rates as soon as September, depending on the data flow in the meantime.
Outlook
Given New Zealand’s better than expected Q2 employment data last week, we cut half our short NZD TWI position and suspect the greater gains short term could be through short NZD/USD.
Published on Thu, Aug 14 2008, 06:06 GMT
EUR/USD was ultimately little changed, sitting around 1.4920 in late New York trade
Wed, Aug 13 2008, 05:49 GMT
by Westpac Institutional Bank Team
News and views
USD/majors saw some profit-taking on shorts, producing whippy price action and by late NY, a slightly softer dollar overall, with yields lower and equities weak. Oil contributed to the lack of strong direction, seesawing anywhere from $112.50/bbl to over $115.50 on confusion over whether hostilities have actually ceased between Georgia and Russia. Dallas Fed president Fisher said he expected near “zero growth” in H2 and a “sustained period of anaemia” – not that this has stopped him voting for higher interest rates all year. Minneapolis Fed president Stern said the oil price pullback “improves the inflation outlook.” The New Zealand dollar dipped to a 0.6931 low, rebounded to over 0.7000 then softened to the 0.6975 area.
The Australian dollar was punished in the London morning as far as a low of 0.8703 but then bounced sharply to flicker above 0.8800 before easing back to 0.8750-70 for much of NY trade.
EUR/USD was ultimately little changed, sitting around 1.4920 in late New York trade.
USD/JPY was more directional than most, slipping about 90 pips in the NY session to 109.35, with reports of Japanese retail selling.
US trade deficit narrows to $56.8bn in June. The trade deficit fell unexpectedly for the second month running in June despite surging oil prices which had been expected to boost import values. In fact, non-oil imports fell 1.4%, offsetting some of the $3.3bn increase in oil imports and constraining the overall import rise to a still solid 1.8%. There was particular weakness in capital goods imports, down 3.4%, and consumer goods, down 1.4% – both signs of weakening domestic demand at the end of the second quarter. The imports gains was further offset by ongoing strength in exports, broad-based across most categories except civilian aircraft, computers and telecoms. With the real (price adjusted) trade balance down almost $4.5bn in June, the contribution of net exports to Q2 GDP growth (already 2.4 ppts) will be revised higher later this month.
US IBD/TIPP consumer comfort up 5.4 pts in August. The gain in consumer optimism this month took this particular measure of confidence to its highest in six months. Lower gasoline prices and the stronger stockmarket would have been the major influences.
Japanese July corporate goods prices stronger than anticipated at 7.1%yr. That compares to the 5.7% rate recorded in June. The major portion of the overall gain is concentrated in raw and basic materials such as ferrous metals, chemicals and fuels.
German GDP may have fallen “more than 0.3%” in Q2 according to Bundesbank chief Weber. Previously we have heard rumours it fell up to 1.0% in the quarter. Official data due 14/8.
UK CPI jumped 0.6 ppts to 4.4% in July, beating the consensus for the fourth straight month, to be more than double the 2% target. This is not the peak – higher gas and water bills are yet to hit the figures. It wasn’t just food and energy prices lifting inflation – the core rate accelerated to 1.9% yr, which means that higher costs are to some extent being passed on to consumers, even despite weakening demand. Other data included weak house prices on two different measures and a soft sales report for July from British retailers.
Canadian trade surplus C$5.8bn in June. A sharp rise in auto exports following the strike that impacted GM but ended in late May, and surging energy exports, pushed the trade surplus to its highest since January 2006. But the auto boost is temporary and lower energy prices will soon feed through so the prospect is for a narrower surplus ahead.
Outlook
Given New Zealand’s better than expected Q2 employment data last week, we cut half our short NZD TWI position and suspect the greater gains short term could be through short NZD/USD.
Published on Wed, Aug 13 2008, 05:49 GMT
EUR/USD rallied on headlines from ECB's Liebscher
Tue, Aug 12 2008, 06:21 GMT
by Westpac Institutional Bank Team
News and views
After a brief setback on hawkish ECB comments in London, USD quickly resumed its upwards march. Again, this came despite an empty US data calendar as USD enjoys “least worst” status. Commodities came under heavy pressure once more, with gold price action catching the eye: spot gold drifted down $5 to $855/oz in NY then suddenly collapsed to around $820/ oz, a 20% fall from the March highs and its weakest point since Dec07. The S&P GSCI commodity index officially dropped into bear territory, with oil prices also weighing. The New Zealand dollar benefited from USD’s dip in London, jumping 75 pips to a high of 0.7086 but then shed a full cent by late NY, bumping around 0.6980, fresh lows since Sep07.
The Australian dollar squeezed up 90 pips to a 0.8952 high in the London morning but then resumed its increasingly familiar sell-off, to 0.8815 by late NY.
EUR/USD rallied on headlines from ECB’s Liebscher. He described inflation as “worrying” and said slower growth was only a “limited surprise”. This helped the pair to 1.5084 but it spent the rest of the overnight session under pressure, to near 1.4900.
USD/JPY bounced from a 109.55 low to touch 110.40 as US equities swung from negative to positive but again failed to make headway from there, easing to 110.15.
No US data to report.
German wholesale prices up 9.9% yr in July, the highest this decade, although recent developments in commodity markets should soon see the pace of acceleration moderate somewhat.
UK producer prices may be peaking. July data showed the first monthly decline (–0.6%) in input prices since August last year. Annual growth in core output prices was steady at 6.7% yr, after jumping sharply from 3.2% yr in February. With oil and some food prices falling in recent weeks, the August PPI report might more clearly show some softening in price pressures. But that won’t help the July CPI, expected (by us) to jump from 3.8% yr to 4.3% yr (out tonight). Other UK data included a near £300mn widening in the visible trade deficit to £7.7bn in June.
Canadian housing cooling. Housing starts fell 14% in July to their lowest level for the year so far, although bad weather in Ontario probably dampened the picture somewhat. In June, new house prices rose 0.1% to be up just 3.5% over the year – the slowest annual growth rate since 2002.
Outlook
Given New Zealand’s better than expected Q2 employment data last week, we cut half our short NZD TWI position and suspect the greater gains short term could be through short NZD/USD.
Published on Tue, Aug 12 2008, 06:21 GMT
USD extended its gains across the board
Mon, Aug 11 2008, 06:22 GMT
by Westpac Institutional Bank Team
News and views
USD extended its gains across the board, with DXY adding another 0.9% to its highest levels since 21 February. A 303pt surge in the DJIA helped on a day with no notable US economic data. Oil dropped about $4/bbl vs late Asia-Pac trade, to its lowest close since 1 May. Equities rallied strongly on the sagging oil prices, brushing off a worse than expected $2.3bn Q2 loss by Fannie Mae. The New Zealand dollar however was somehow exempted (admittedly after heavy losses in local trade), creeping up about 20 pips to 0.7045.
The Australian dollar’s unwinding continued, with AUD/USD ratcheting lower, with the 0.8866 low the weakest point since end-Jan.
EUR/USD sank about 1% to close New York just over 1.5005. The break below 1.5000 – for the first time since 27 Feb – proved less eventful than expected.
USD/JPY pressed higher, though a little less forcefully than might have been expected, given the huge equity rally and the broad demand for USD.
US productivity growth moderates to 2.2% annualised. Productivity growth slowed a little in Q2 because the stronger pace of non-farm output growth was offset by a smaller fall in hours worked than in Q1 (payrolls had implied a steeper fall in hours). However unit labour costs growth slowed because lower productivity was more than offset by weaker growth in pay. Also non labour unit costs fell in the latest quarter. All subdued from an inflation perspective.
US wholesale inventories up 1.1% in June. Fuel and food price gains contributed to the 1.1% rise in the value of wholesale inventories although excluding those components stocks still rose 0.4% - not enough to make a material difference in any revision to the (negative) contribution of stocks to Q2 GDP growth.
Japanese core bank lending rose 2.5%yr in July. That compares to a 2.4% pace in June. Overall lending rose 1.8%yr, up from 1.7% in June. Total deposits are growing at the same rate.
Canadian employment fell 55k in May, its biggest monthly drop since the early 1990s. We had been expecting a correction lower in factory jobs after unusual strength back in May and they fell 32k, but there was also a steep 37k fall in services jobs. Perhaps softening the data a little, full-time jobs were only down 7k, while part-time fell 48k. Indeed it was mostly part-time jobs that explained strength in employment earlier this year, so this result should be seen as corrective from that. The unemployment rate fell slightly, because those surveyed who lost/left their jobs, left the workforce altogether. With services jobs likely to correct higher next month (some of the loss was in education which is normally non-cyclical), it is unlikely that this report will overly influence Bank of Canada thinking, but it certainly argues against any near-term retightening of monetary policy.
Italian GDP growth fell 0.3% in Q2, against expectations growth had merely stalled, and its second quarterly decline in three quarters. This means that the Italian economy has not expanded at all compared to the same quarter in 2007. With German growth certain to correct sharply lower from Q1’s 1.5% in Q2 (one leak suggested it fell 1.0%!), we now see downside risk to our Euroland GDP forecast of –0.3% in Q2. Also, the European Central Bank’s latest bank lending survey revealed even tighter lending standards which suggests the recent slowdown in the ECB’s own M3 money supply and lending statistics will continue.
Outlook
Given New Zealand’s better than expected Q2 employment data, we cut half our short NZD TWI position and suspect the greater gains short term could be through short NZD/USD.
Published on Mon, Aug 11 2008, 06:22 GMT
The offshore session saw more of the same for the USD with recent outperformance
Fri, Aug 8 2008, 05:58 GMT
by Westpac Institutional Bank Team
News and views
The offshore session saw more of the same for the USD with recent outperformance continuing. After a fairly quiet London morning US rate futures started rallying on rumours of US aircraft movement in the Gulf. Then we had a relatively dovish press conference from ECB President Trichet, where he highlighted downside growth risks to the Eurozone. Then better than expected US pending home sales data supported USD. Like most currencies versus the USD, the New Zealand dollar was soggy, falling below 0.7150, touching lows dating to Sep 2007.
The Australian dollar also continued its recent run lower, falling to a low of 0.9059.
USD/JPY was lower early on risk aversion before regaining ground, leaving it in consolidation mode after its sharp gains. Heavy losses on Wall Street left it around 109.40 in late NY, well short of the closely watched 110 level.
EUR/USD fell sharply after the ECB press conference, the pair trading down from a high of 1.5502 as Trichet started speaking to a low of 1.5355.
US pending home sales up 5.3% in June. Pending home sales have been quite volatile of late, but were undeniably stronger overall through the second quarter, which means that the broader existing home sales measure should also show some strength in the next month or so. The only region to show a clear uptrend in pending sales all year is the West, and that is where prices have fallen the most, by around 30% over the past year, so clearly the emergence of bargain-hunters snapping up cheap foreclosed properties is at least part of the reason for the pick-up in sales.
US initial claims rose a further 7k to 455k, their highest in nearly six and a half years, last week. But remember there has been a change in the rules which means that some claimants have had to submit a fresh claim after finding temporary work that has since ended whereas previously they could have merely reactivated their earlier claim. This has the effect of boosting the numbers – both for initial and continuing claims – but unfortunately we don’t know by how much. So what was once a useful and timely gauge of shifting labour market conditions has now lost much of its value, at least for the time being.
Japanese machinery orders fell 2.6% in June, much better than expected. That compares to a 10.4% rise in the previous month.
The European Central Bank left its repo rate on hold at 4.25%. At the press conference, ECB chief Trichet reiterated that growth would “not be particularly flattering” in Q2 and Q3, and acknowledged that downside risks to growth were now actually “materialising”. But with credit growth still solid, inflation rising to 4.1%, some evidence of rising labour costs and unhelpful wage claims being pursued, he stressed that on balance “information that has become available since our previous meeting has further underpinned the reasoning behind our decision to increase interest rates in July”. He stressed that the Council had “no bias”, so no move on rates is likely next month either. On the data front, German industrial production rose just 0.2% in June after falling a cumulative 2.5% over the previous three months - part of the “unflattering” data picture Trichet was referring to.
The Bank of England left rates on hold at 5.0% following this week’s monetary policy committee meeting. No statement was issued, but in its next inflation report is due August 13.
Canadian building permits fell 5.3% in June, partial pay-back for the 17% jump back in April. This is a volatile data series, but with annual growth easing from –4.7% yr to –9.2% yr, its is fair to say that the trend is still to the downside.
Outlook
We continue to like NZD lower multi week especially on a TWI basis. However, yesterday’s better than expected employment data saw us cut half our short NZD TWI position, looking for better level to re-enter.
Published on Fri, Aug 8 2008, 05:58 GMT
USD/JPY marched firmly higher
Thu, Aug 7 2008, 06:39 GMT
by Westpac Institutional Bank Team
News and views
The US dollar enjoyed broad gains in London/NY despite whippy price action on oil and equities, though both were dollar-positive by late NY. Traders noted that USD Index has pushed above its 200 day moving average. Commodities were mixed but overall a little softer, with the CRB Index falling to fresh lows since 7 April. The New Zealand dollar followed the broad trend by slipping vs USD, from a fleeting high of 0.7263 in London to bump around 0.7180 in late NY.
The Australian dollar’s attempt to recapture 0.9200 succeeded only very briefly in London (high 0.9206) before AUD/USD sank amid the general USD rally, to as low as 0.9065 (last seen 2 April) in the Ldn/NY overlap.
USD/JPY marched firmly higher, barely pausing as it added well over one yen to trade above 109.60, last seen on 11 January, as VIX slipped below 20 and pessimism grew over Japan’s economy.
EUR/USD came under pressure ahead of what some speculate could be a not overly hawkish ECB press conference Thursday. The euro retreated from above 1.5500 to the 1.5400/15 area.
No US data to report.
Japan’s leading index points to further deceleration. The leading index fell to 91.2 in June from 92.9 in May. The coincident index fell to 101.7 from 103.3. Neither measure makes particularly good reading. The vast majority of forecasters expect Q2 GDP to contract, and the early portents for Q3 are not especially hopeful.
German factory orders fell 2.9% in June. This was the seventh straight monthly decline, leaving orders down 6.1% compared to June last year, and adding to the weight of evidence pointing to a significant slowdown in the German/Euroland economy later in H2 2008.
UK shop prices jump 3.2% yr in July. This compares to a 2.5% gain in June, and is an early indication that next week’s CPI report for July will show a further sharp acceleration. Also, consumer confidence plunged to a fresh low in July on the Nationwide index.
Canadian Ivey PMI falls from 69.6 to 65.5 in July. This index is not seasonally adjusted and it typically slows in July due to summer shutdowns. That said, the relatively modest fall last month is suggestive of some resilience in the economy.
Outlook
We continue to like NZD lower multi week especially on a TWI basis. Our view is supported by RBNZ governor Bollard’s reiteration this week that there is scope for further easing and NZ Treasury’s apparent expectation of negative Q2 GDP though obviously Q2 employment data today will be closely watched.
Published on Thu, Aug 7 2008, 06:39 GMT
EUR/USD traded modestly lower overall
Wed, Aug 6 2008, 06:23 GMT
by Westpac Institutional Bank Team
News and views
Supported by strong gains on the DJIA (+300pts in late NY trade) and lower oil prices, USD rallied firmly in London/NY before easing back slightly on the somewhat dovish FOMC statement (downside risks to growth no longer “diminished” and still only one dissenter (Fisher) despite inter-meeting hawkishness from Plosser and Stern). A stronger than expected July non-manufacturing ISM report also helped USD. The New Zealand dollar outperformed most majors, recovering from its London low of 0.7221 to ratchet back to 0.7260.
The Australian dollar extended its losses through London and NY trade in the wake of the RBA’s clear signal of monetary easing ahead, grinding from 0.9220 to as low as 0.9133 in NY, with the dovish Fed providing only about a 20 tick pop higher (to 0.9160).
USD/JPY was under pressure in the London morning but picked up briskly from the 107.70 area to above 108.20 as equities extended their gains.
EUR/USD traded modestly lower overall, slipping below 1.5500 in London and staying there, with only a fleeting 15 pip squeeze higher to 1.5470/75 on the FOMC statement.
US Fed left its funds target unchanged at 2.0%. Once again, Richard Fisher of the Dallas Fed dissented in favour of an immediate rate hike. The statement noted that “Although downside risks to growth remain, the upside risks to inflation are also of significant concern to the Committee. The “risks” comment from the June 25 FOMC statement read thus: “Although downside risks to growth remain, they appear to have diminished somewhat, and the upside risks to inflation and inflation expectations have increased.” So this time around the Fed has dropped the reference to diminished downside risks to growth, in line with recent Bernanke testimony, and described inflation risks as significant rather than increased. Overall, that could be interpreted as a Fed that is a little further away from an eventual policy retightening now compared to June, but by fiddling with the inflation adjective the Fed has been careful not to be to clear-cut in its assessment of how the balance of risks might have shifted over the last six weeks.
US ISM non-manufacturing rises from 48.2 to 49.5 in July. The nonmanufacturing ISM revealed a smaller contraction in July activity, despite slightly weaker readings for activity and orders. These were offset by longer supplier delivery times and less weak jobs, the other two components of the composite index. The prices index was a little lower, perhaps reflecting the recent pull-back in energy prices. When combined with the previously released manufacturing survey, the “whole economy” ISM was just south of neutral, consistent with the view that the US economy is stalled rather than slumping.
Euroland retail sales fell 0.6% in June, down for the fourth month in five, fully reversing their May gain and leaving in place a steep downtrend that means annual sales volume growth has slumped to –3.1% yr, the weakest since combined European data became available in the mid 1990s. This result suggests that household spending contracted in Q2, and increases the risk that Euroland GDP growth failed to grow at all in the second quarter (date due 14/8). Also the July services PMI was unrevised at 48.3.
The UK services sector continued to contract in July, despite a slight 0.3pt improvement in the headline services PMI to 47.4. The employment index showed renewed weakness which we expect to soon show up in the official labour force data. And new business fell to its lowest yet. Also, the industrial report for June revealed more bad news on activity, with manufacturing output dropping 0.5% again.
Outlook
We continue to like NZD lower multi week especially on a TWI basis. Our view is supported by RBNZ governor Bollard’s reiteration this week that there is scope for further easing and NZ Treasury’s apparent expectation of negative Q2 GDP.
Published on Wed, Aug 6 2008, 06:23 GMT
USD/JPY generally pushed higher, trading to the 108.20 area in late NY
Tue, Aug 5 2008, 06:04 GMT
by Westpac Institutional Bank Team
News and views
The overnight session was mostly cautious as little fresh capital was committed ahead of the FOMC meeting. The main excitement was when a dollar sell-off was reversed by a sharp >$4/bbl plunge in NYMEX oil prices, with rumours swirling of commodity hedge funds in trouble. The New Zealand dollar was generally a little firmer through the session, trading to a high of 0.7335 before easing to just above 0.7300.
The Australian dollar’s underperformance continued, probing above 0.9340 only to be firmly rebuffed as oil and other commodities fell (e.g. spot gold -$10/oz in short order), sending it below 0.9300.
USD/JPY generally pushed higher, trading to the 108.20 area in late NY.
EUR/USD was little changed overall, with its foray above 1.5620 ended by the oil price slide which knocked it back to 1.5570/80.
US core PCE deflator up 0.3% in June. This result was in line with the core CPI in June, and consistent with the quarterly core PCE deflator published last week in the Q2 GDP report, so not really fresh news. The annual rate edged up from 2.2% yr to 2.3% yr. The report also showed a modest 0.1% rise in personal income, on top of the tax rebate boosted 1.8% surge in May; and a 0.6% rise in personal spending, stronger than June retail sales which only rose 0.1%.
US factory goods orders jump 1.7% in June. Durables were unrevised at 0.8%, while higher energy prices boosted non-durable orders to a 2.5% gain, and factory inventories by 1.0%.
Euroland Sentix investor confidence falls from –9.3 to –15.3 in Aug. The survey evidence out of Europe keeps plunging, pointing to a sharp decline in economic activity in the second half of this year. But Euroland producer prices accelerated to 8.0% yr in June, a new cycle high, so the ECB will remain alert to upside inflation risk.
UK construction PMI drops further in July. A new all-time low of 36.7 for this measure of activity in the housing and commercial property sector.
Outlook
We continue to like NZD lower multi week especially on a TWI basis. Rate cutting cycles from the US Federal Reserve, Bank of England and Bank of Canada over the past 12 months have shown that currencies typically continue to decline through the cycle, despite a market already expecting the future cuts to come.
Published on Tue, Aug 5 2008, 06:04 GMT
USD bounced on the milder than expected fall in employment in July
Mon, Aug 4 2008, 06:36 GMT
by Westpac Institutional Bank Team
News and views
USD bounced on the milder than expected fall in employment in July (-51K) but struggled to maintain its positive tone, with equities weaker, oil higher and focus on the higher than expected unemployment rate (5.7%, highest since Jan 2004). General Motors dragged down the DJIA with its -7.6% after reporting a hefty $15.5bn Q2 loss. NYMEX crude oil jumped about $4.50/bbl to highs above $128 on assorted opinion pieces on Israel-Iran tensions and short-covering but closed around $125. The New Zealand dollar fell about 40 pips to its intra-day low of 0.7246 but overall closed little changed vs USD.
The Australian dollar was firmly out of favour as RBA rate cut fever continued to rage, with the US payrolls number accounting for only about 20-25pts of AUD/USD’s 70 pip loss vs the local close, to lows not seen since 2 May.
The euro dropped from 1.5580/85 vs USD to a (fleeting) 1.5514 low on the payrolls headlines but late recovered as oil bounced and closed around 1.5565.
USD/JPY was choppy but mostly bid, despite the US equity losses.
US payrolls down 51k in July. The payrolls decline was, after upward revisions worth 26k to May and June, broadly in line with the 3 month average decline of 50k, compared to an average loss of 79k in the three months to April. That slower pace of job loss is consistent with the modest pick-up in GDP growth in Q2. Note that the upward revisions were to government jobs (+37k); private sector payrolls were revised down by 11k in May-June. The report included the normally volatile household survey which showed its third consecutive jobs decline which, coupled with a bounce in labour force participation, was enough to push the jobless rate from 5.5% to 5.7%. The industry detail in the report showed broad-based job losses.
US ISM came in at exactly 50 in July which indicates stalled but not weaker factory activity. There was a further rise in output and a probably rogue jump in the jobs measure, but these were offset by sharply lower new orders and a steeper than usual fall in the July exports number (which is not seasonally adjusted). These last two factors are not helpful for the growth outlook.
US construction spending continues to weaken, falling 0.4% in June due to ongoing decline in the residential sector.
The Euroland factory PMI was revised down by 0.1 to 47.4 in July, confirming that Euroland industry entered the second half of 2008 in weaker shape than earlier in the year. Similarly, the steep 1.4% fall in German retail sales in June points to weaker consumer spending in Euroland’s largest member economy; in annual terms, sales are down 3.9% yr.
UK factory PMI 44.3 in July. The factory PMI slumped to its lowest since late 1998 in July, adding to the mountain of evidence that suggests the UK economy is entering recession.
Outlook
We continue to like NZD lower multi week especially on a TWI basis. Rate cutting cycles from the US Federal Reserve, Bank of England and Bank of Canada over the past 12 months have shown that currencies typically continue to decline through the cycle, despite a market already expecting the future cuts to come.
Published on Mon, Aug 4 2008, 06:36 GMT
The Australian dollar was also up and down on the US news
Fri, Aug 1 2008, 05:42 GMT
by Westpac Institutional Bank Team
News and views
After a very quiet London morning things heated up once New York came in. First, and most importantly, we had weak Q2 US GDP data, with revisions also to the weak side, along with a surge in weekly jobless claims to a >5 year high (albeit with quirks in the series). This saw the USD, Treasury yields and equity futures lower. Then we heard from “ECB sources” there’s a chance of a negative Q2 GDP result in the Eurozone. The latter saw the USD regain most of its earlier losses. The New Zealand dollar was up and down on this USD based news, trading a 0.7309/64 range.
The Australian dollar was also up and down on the US news, but struggled somewhat to the topside, with Australian newspapers further stoking speculation of an RBA rate cut in Sep. Having squeezed to a 0.9476 high, it fell as low as 0.9397 in NY before edging back to 0.9425.
USD/JPY sank 70 pips on the US data, trading down to a low of 107.57 before regaining some ground later on.
EUR/USD soared 90 pips to 1.5700 on the US GDP/claims but later fell to around 1.5640 after the ECB news and then eased to just below 1.5600.
US GDP growth up 1.9% in Q2. US GDP growth picked up in Q2, reflecting a modest acceleration in consumer spending, slow but steady business investment growth, a lesser drag from the housing slump, stronger government spending and a roaring 2.4 ppt contribution from net exports, which more than offset a 1.9 ppt drag from inventory rundown. But the report also included annual revisions, and most recently these were to the downside, including a quarterly growth contraction back in Q4 last year.
US initial jobless claims surged 44k to 448k, their highest in more than five years, last week, but the data are distorted by some previous claimants legitimately claiming for a second time after short periods of temporary work that under prior arrangements would not have allowed a second claim. This distortion will continue for some time and follows the auto plant shutdown-reopening distortion earlier in the month, with both combining to make it difficult to interpret this erstwhile useful indicator of the jobs market. Still on the jobs market, the employment cost index confirmed benign inflationary pressures from the labour market; Monster.com reported a weaker job index, slipping from 163 to 157 in July (not seasonally adjusted, but weak anyway).
Three of the four US regional factory surveys were less weak in July, with Chicago recording its first above 50 reading since January, mainly due to further strength in orders (which we suspect is export driven). A new high for prices paid indicates that the weaker oil price in July is yet to be captured in the survey. Of the lesser watched surveys, New York slipped further into the red, Milwaukee fell at a slower pace and Cincinnati showed accelerating growth.
Canadian GDP surprised with a 0.1% May fall, mainly due to strike-impacted auto output and lower gas production.
The flash estimate of European inflation edged up to 4.1% yr in July, and unemployment dipped a little lower last month (and German unemployment kept falling in July). So even though survey data points to a much weaker outlook for the economy, the hawkish European Central Bank will take some time before coming to the conclusion that easier monetary policy is appropriate.
The UK household sector took another battering in July, with house prices sliding further, and consumer confidence slumping to its lowest since 1974 (in line with Westpac’s forecast).
Outlook
We continue to like NZD lower multi week especially on a TWI basis. Rate cutting cycles from the US Federal Reserve, Bank of England and Bank of Canada over the past 12 months have shown that currencies typically continue to decline through the cycle, despite a market already expecting the future cuts to come.
Published on Fri, Aug 1 2008, 05:42 GMT
The USD remained bid in the overnight session on a lower gold price (5 week lows)
Thu, Jul 31 2008, 05:48 GMT
by Westpac Institutional Bank Team
News and views
The USD remained bid in the overnight session on a lower gold price (5 week lows), then announcement of changes to securities loan programs from the Fed, ECB and SNB, and then a continued equity bounce. The greenback even proved resilient in the face of a nearly $6/bbl rise in oil prices as weekly gasoline inventories unexpectedly fell. The New Zealand dollar was soft throughout, falling to a low of 0.7316.
The Australian dollar was also softer against the greenback, falling back near to 0.9400, its lowest since mid June.
USD/JPY rallied from 107.70/80 to highs above 108.30, of which about 30 pips came on the extension of the Fed’s measures to improve money market conditions.
Despite a slip to a 1.5522 low from above 1.5600, EUR/USD bounced in the NY afternoon to be only a little softer, around 1.5570 late NY.
US ADP private payrolls up 9k in July. The ADP private payrolls estimate of a 9k gain probably represents a return to the tendency of ADP to over-estimate the official estimate of private payrolls growth by around 92k, which it did in the first five months of this year, on average, before getting it “about right” in June. If indeed ADP does turn out to be 92k higher than the change in the BLS private measure, and government jobs grew around 25k, as they have recently, then total payrolls would fall 58k, a little below the average monthly job loss through Q2 of 64k. However our forecast is for a 75k decline in July, consistent with other employment indicators that, if anything, point to further deterioration in the labour market. We’ll know on Friday night.
Japanese industrial production fell 2.0% in June. That compares to a 2.3% rise in May and consecutive declines in March-April. For the quarter, production fell 0.7%, the same outcome as Q1. The annual rate slows from 2.5% in Q1 to 1.1% in Q2.
Japan’s small businesses feel the pinch. The Shoko Chukin survey fell to 39.9 in July from 40.7 in June.
Euroland business & consumer surveys point to slowing economy. This month’s collection of business and consumer surveys conducted by/for the European Commission and the private sector revealed a universally depressed economy in July. The business climate index turned negative for the first time in about three years; industrial and consumer confidence posted further steep declines, on top of the their June plunges; and overall economic sentiment was the lowest recorded since the mid 1990s (excluding temporary dips around 9/11 and the Iraq War in 2003). All of this should provide further justification for the European Central Bank to keep rates on hold next week. Indeed, if the data continue to soften in this fashion, then the case will be soon be made for the ECB to reverse their July rate hike – especially with annual headline inflation likely to fall sharply in mid 2009 if recent lower energy prices are sustained. One “bright spot” was a slightly less weak retail PMI this month, though at well below 50 (46.0), it is still indicative of weak consumer spending.
Outlook
We continue to like NZD lower multi week especially on a TWI basis. Rate cutting cycles from the US Federal Reserve, Bank of England and Bank of Canada over the past 12 months have shown that currencies typically continue to decline through the cycle, despite a market already expecting the future cuts to come.
Published on Thu, Jul 31 2008, 05:48 GMT
Day by day, the evidence pointing to the UK economy entering recession, mounts
Wed, Jul 30 2008, 06:10 GMT
by Westpac Institutional Bank Team
News and views
The New Zealand dollar started the overnight session on the back foot after an announcement by NZ Guardian Trust. This continued as the USD regained Monday’s losses on the back of softer oil prices and given a better performance from the US equity market. US confidence and housing data were also a little above consensus. The combination of these factors was enough to see NZD/USD sharply lower, falling to 0.7350 in NY morning trade before bouncing back to the 0.7390 region as oil climbed off its lows.
The Australian dollar was also softer against the greenback, falling back to 0.9500 (barely) for the first time since breaking through the old all time highs around 0.9650.
USD/JPY was firmly bid on broad USD buying and lower risk aversion as US financial stocks rallied, in some cases enjoying 10% gains on the day.
EUR/USD fell back through 1.56 as oil prices tumbled $4/bbl and the DJIA extended gains beyond 200pts.
US consumer confidence edges up from 51.0 to 51.9 in July. The Conference Board measure of confidence stabilised a little in July (albeit at multi-decade lows), probably due to gasoline prices edging lower in recent weeks. That would also explain the slight pull-back in inflation expectations. Other weekly and monthly confidence measures have also edged higher this month (and the final reading of the UoM sentiment index, more sensitive to prices, was revised sharply higher). Within the detail, though, the job market sentiment net balance continued to slide, consistent with a further upswing in the unemployment rate.
US house prices down 15.8% yr in May. House prices (for the 20 largest capital cities) continued to fall back in May, but the 0.9% monthly pace of decline was the smallest since August last year. This is because prices in some regions (most notably the northeast, but also parts of the midwest) have begun to edge higher, although in the West and South the losses are still running at around 3% in the month and nearly 30% over the past year. Despite the small national monthly loss, the annual rate of decline quickened, and with the mortgage market in turmoil, unemployment rising and the stock of unsold homes close to a year’s worth of sales at the current pace, prices are expected to keep falling overall.
Japan’s labour market is gradually softening. The unemployment rate rose to 4.1% in June from 4.0% in May. The jobs-to-applicants ratio fell to 0.91 from 0.92.
Japan’s consumer data lacklustre. Retail sales expanded 0.3%yr in June, the same rate as May, based on a flat month and a slightly upward revision to history. The real household spending series improved to -1.8%yr from -3.2% in May.
German inflation stabilised in July, and recent energy price developments could mean that 3.3% proves to be the peak for the annual rate. That in turn should help prevent Euroland inflation from rising further, which could encourage the European Central Bank to soften its rhetoric somewhat next week, or in September when they next publish their quarterly staff forecasts.
More dire news re the state of the UK household sector. The latest CBI retail survey plunged to a 25 year low this month (though the survey started in late June so the result may have been infected by the weakness already reported in the official June retail report). Consumer credit growth was constrained in June, and new mortgage lending continued to contract, with both the number of loans and value of lending down around 70% on their respective peaks less than a year ago, just before the credit crunch really started to bite. Also, a report on the mortgage market meltdown by Sir James Crosby (former CEO of one of the major banks) suggested there was no easy fix and that the problems would be protracted. Day by day, the evidence pointing to the UK economy entering recession, mounts.
Outlook
We continue to like NZD/USD lower multi week especially on a TWI basis. Rate cutting cycles from the US Federal Reserve, Bank of England and Bank of Canada over the past 12 months have shown that currencies typically continue to decline through the cycle, despite a market already expecting the future cuts to come.
Published on Wed, Jul 30 2008, 06:10 GMT
The USD was broadly softer during the overnight session
Tue, Jul 29 2008, 06:02 GMT
by Westpac Institutional Bank Team
News and views
The USD was broadly softer during the overnight session, as oil prices rose almost $US2/barrel off what had been multi week lows and European equities were softer ahead of European bank earnings later in the week. US yields fell as Treasuries rallied, eyeing both European equities and then what turned out to be a soft start to the week on Wall Street. The New Zealand dollar was no exception, despite last week’s RBNZ rate cut, with the currency lifting back to 0.7450 – admittedly a modest gain in tight ranges.
The Australian dollar was also stronger against the greenback, closing back in on 0.9600 before backing off to 0.9570.
USD/JPY was a little softer, retreating slightly from what had been a 4 week high during the Asian session. The pair traded as low as 107.35 as the Dow bumped around -175pts in afternoon NY trade, but found some buyers there.
EUR/USD was volatile, with E European buyers fuelling a 50 pip rally to over 1.5760 before a sudden retreat to 1.5720 and then choppy trade mostly around 1.5750.
Fedspeak. Retiring Federal Reserve Governor Frederic Mishkin made one final push in a speech delivered overnight for the central bank to adopt a specific inflation target. Mishkin said a long-run average inflation rate of 2%, or slightly lower, would be an appropriate target for the Fed, saying a “strong nominal anchor can be especially valuable in periods of financial market stress, as we have been experiencing recently, when prompt and decisive policy action may be required to minimize the risk of a severe contraction in economic activity.” In the Q&A that followed, Mishkin said the Fed should target headline rather than core inflation which he said could be biased in the long run. On the other hand, he noted that core inflation was a more useful policy tool for central bankers given that short term headline inflation fell outside the influence of monetary policy.
German GFK consumer confidence fell to its lowest level in more than 5 years in Aug. The Index fell from 3.6 in July to 2.1 in August. Expectations were for only a slight decline to 3.5. Inflation concerns and the recent increase in interest rates by the ECB were said to be the key factors playing on consumers minds.
Outlook
We continue to like NZD/USD lower multi week especially on a TWI basis. Rate cutting cycles from the US Federal Reserve, Bank of England and Bank of Canada over the past 12 months have shown that currencies typically continue to decline through the cycle, despite a market already expecting the future cuts to come.
Published on Tue, Jul 29 2008, 06:02 GMT
USD gained some ground Friday night on better than expected US data
Mon, Jul 28 2008, 06:03 GMT
by Westpac Institutional Bank Team
News and views
USD gained some ground Friday night on better than expected US data (durable goods orders, new home sales and Uni of Michigan consumer sentiment all beat consensus) but the dollar’s gains proved modest overall as equity sentiment was hurt by ratings agency S&P’s threat to downgrade Fannie Mae and Freddie Mac. Oil lent some support to USD – NYMEX crude oil slumped about $3/bbl in short order and closed at $123.26/ bbl, its lowest close since 4 June. The New Zealand dollar had hit a high of 0.7469 in the London morning but the firmer US data set NZD/USD into a steady decline to the 0.7420 area, which proved sticky in New York.
The Australian dollar traded a 0.9548 - 0.9609 range in London which got tighter after London finished the week, ultimately finishing around 0.9560.
EUR/USD found ready buyers in London, pushing about 1.5750 but retreated on the reasonable US economic data and the resumption of oil price declines. This left the euro quite flat, near 1.5700.
USD/JPY showed clearer direction than most, ramping up steadily from London morning lows under 106.60 to 107.70 after the US data, but with the Dow fading to an underwhelming 21pt gain, 108.00 proved too tough a nut to crack.
US durable goods increased 0.8% in June – stronger than market expectations of a –0.3% fall and the first monthly gain since July 2007. May orders were also revised higher to 0.1%. Orders for non-defense capital goods excluding aircraft rose 1.4% following a 0.1% decline in May, while shipments for the same items increased 0.7%. The result has seen some forecasters lift their estimates for Q2 GDP.
US new home sales were stronger than anticipated in June, declining just 0.6% to a 530,000 annualised pace. This followed a revised 1.7% decline in May (previously -2.5%). The market expected a fall of 1.8% in the month.
The final read on the July US University of Michigan consumer confidence survey came in at 61.2, above expectations and stronger than the preliminary reading of 56.6 taken earlier in July. The index was at 56.4 in June. It seems the tax rebates may be giving consumers a bit of a lift, albeit still at low levels.
Japanese consumer price inflation accelerated again. The headline nationwide CPI rose 2.0%yr in June, from 1.3% in May. Ex fresh food and energy, nationwide prices rose 0.1%yr, up from -0.1%. Ex fresh food came in at 1.9%. The Tokyo series for July came in at 1.6%, up from 1.5%. Ex fresh food and energy, Tokyo prices rose 0.3%yr in July, unchanged from May. Ex fresh food came in at 1.6%.
Japanese June corporate services price inflation heading higher on international transport costs. The headline CSPI rose 0.5% in June, to be 1.2% above year ago levels. That compares to domestic corporate goods prices, which rose 0.8% in June to be up 5.6%yr. The main source of services price inflation is the freight industry. Ocean-going freight costs are up 23.3%yr; ship chartering services are up 24.4%yr and international air freight costs rose 5.0% in the month and 7.1%yr.
Euroland money supply growth slowed by more than anticipated in June. M3 growth increased 9.5% compared to June last year – the weakest pace of growth since November 2006. Market expectations were for an increase of 10.3% yr.
UK GDP rose 0.2% in the June quarter, in line with market expectations, and the slowest pace of growth since 2001. GDP grew 1.6% compared to a year ago. The main culprits for the weak growth were a 0.4% decline in manufacturing and a 0.7% decline in construction (the first contraction in more than two years).
Outlook
We continue to like NZD/USD lower multi week especially on a TWI basis. The RBNZ’s rate cut and dovish statement last week only reinforced our confidence in this view.
Published on Mon, Jul 28 2008, 06:03 GMT
The USD looked quite comfortable in the London morning but then came under pressure in early NY
Fri, Jul 25 2008, 05:59 GMT
by Westpac Institutional Bank Team
News and views
The USD looked quite comfortable in the London morning but then came under pressure in early NY as the Dow traded down more than 100pts on the return of worries over financial stocks and poor housing data. The damage to USD was limited overall, however, despite equities extending their losses (Dow -270pts late NY). Previous tentative optimism was punctured by Pimco’s prediction that falling house prices would force a total of $1 trillion in writedowns and June existing home sales were weaker than expected, hitting a decade low. The S&P 500 Homebuilders Index was down a hefty -12% in late NY trade. The New Zealand dollar gained from 0.7405/10 to 0.7440 at the peak of USD selling but later dipped below 0.7400 before a late bounce to 0.7420.
The Australian dollar hit a high of 0.9637 in the NY morning, tumbled as low as 0.9565 then climbed back to the 0.9580 area.
USD/JPY had the clearest trend of all, ratcheting down from 107.80 to 107.24, keenly watching equities.
EUR/USD was smacked 50pts lower on a dismal reading on the German IFO survey and enjoyed only a brief rally through 1.5700 on USD selling before softening once again.
US June existing home sales fell to 4.86mn from 4.99mn in May, another all time low for this series (series began in 1999). The detail of the report showed a housing market where single-family homes are bearing the brunt of the downturn, with little prospect of a fundamental turnaround until inventories have returned to more normal levels and mortgage credit flows more easily again.
US jobless claims rise to 406k from a revised 372k. The spike in claims seems to be largely an artefact of a mis-match in timing of the seasonal adjustment factors with the timing of automotive related layoffs.
Japan, a June bounce in both imports & export – trade surplus narrows. Exports edged up 0.9% in the month but the surplus narrowed to JPY135bn from JPY652 in May as imports bounced boosted by higher crude oil prices. Rising import prices, particularly for commodities and energy has lead to a deterioration in the Japanese terms of trade.
The Eurozone PMIs were weaker than expected in July, with manufacturing down from 49.2 to 47.5 and services down from 49.1 to 48.3.
German Ifo soft for July. The business climate index fell to 97.5, its first print below 100 since December 2005.
UK retail sales down 3.9% in June. Retail sales plunged in June at the fastest pace since records began in 1986 after seeing the largest monthly rise on record in May.
Outlook
Given weakness in the NZ economy, we continue to like NZD/USD lower multi week especially on a TWI basis. The RBNZ’s rate cut and dovish statement just reinforced our view.
Published on Fri, Jul 25 2008, 05:59 GMT
The offshore session saw the USD continue to regain ground
Thu, Jul 24 2008, 05:49 GMT
by Westpac Institutional Bank Team
News and views
The offshore session saw the USD continue to regain ground, though more modest in scale. The story was more of the same from Tuesday night, with commodities continuing their recent softness and equities up again, albeit not by much. Oil prices probed above $128 but were firmly rebuffed, slipping to the low $124s in late NY trade, fresh lows since 5 June. The New Zealand dollar was soft throughout, spending most of the session just above 0.7500, in countdown mode ahead of the RBNZ decision.
The Australian dollar came under steady selling pressure, retreating from the 0.9680 area to 0.9610/15 by late NY, with stop losses triggered around 0.9660.
USD/JPY was bid on the stronger USD and better equity performance, with support also from reports of a Japanese insurer buying a US counterpart. The pair is closing in on 108.00.
EUR/USD was soft throughout, breaking below 1.5700 as oil retreated and US yields rose (2yr Treasury yield up 31bp over the past week, to 2.73%)
The Fed’s Beige Book found that the US economy slowed in June and July, with “sluggish” consumer spending in most districts. Retail price pressures were seen as “elevated or increasing” across the board, but there was limited evidence of any pass-through to wage pressures.
Eurozone industrial new orders for May were soft, the monthly number down 3.5% versus an expected 1.3% fall. The high EUR continues to hamper Europe’s manufacturing sector.
Bank of England minutes reveal 3 way split with 7 votes for no changes, 1 for a cut (Blanchflower) and a surprise 1 for a hike (Besley). While the vote for a hike was a surprise for us it reveals the underlying challenges facing the Bank of England – the economy is slowing rapidly but they cannot provide the stimulus necessary because short term inflation is now well above target. For us this is the worst of all worlds for GBP medium term, despite the short term bounce the announcement provided.
Canadian June CPI roughly as expected with the core rate up 0.1%mth (1.5%yr) and the headline a slightly stronger than expected 0.7%mth (3.1%yr).
Outlook
We continue to like NZD/USD lower multi week especially on a TWI basis. However, this morning’s RBNZ announcement is key.
Published on Thu, Jul 24 2008, 05:49 GMT
The New Zealand dollar popped its head over 0.7630
Wed, Jul 23 2008, 06:11 GMT
by Westpac Institutional Bank Team
News and views
The London morning saw the USD slightly offered as Europe digested the soft Amex earnings report, then followed a record $8.9bn loss at Wachovia. Later on though, hawkish comments from Paulson and Plosser and then oil’s fall to a low since 5 June (ahead of a vote in Congress on the Excessive Energy Speculation Act of 2008) saw the USD better bid. The New Zealand dollar popped its head over 0.7630 but then slid well below 0.7600 amid broad USD recovery.
The Australian dollar rose as far as 0.9792 in London but tumbled to just below 0.9700 in NY as the greenback bounced.
USD/JPY was lively again, both down on the softer USD early (106.05 low) then back up to 107.40 or so in late NY as US equities gained momentum – even Wachovia shares rebounded very strongly.
EUR/USD only saw modest upside in London, to a high of 1.5945 then was dumped to 1.5770 as NYMEX oil fell $5/bbl in short order, to around $126, before oil buyers returned.
US Richmond Fed index drops from –12 to –16 in July. The regional factory index was dragged to its lowest since the Iraq War and before that the 2001 recession by sharply weaker shipments and softer orders although the jobs measure was less negative in July. The associated retail and services sector surveys were also weak, the former dropping from –33 to –43 and the latter edging down from –14 to –15.
US house prices down 4.8% yr in May. This is the narrow Office of Federal Housing Enterprise Oversight price index, which has been falling since May 2007, but at a less steep pace than some of the other US house price measures.
Fedspeak. Hawkish Plosser was on the wires arguing that monetary policy needs to be retightened “sooner rather than later”, even before there are signs of economic turnaround. He said the Fed should pay more attention to headline inflation than core rates.
Japanese all-industry activity index rose 0.4% in May. This series incorporates known inputs on IP (+2.9%) and tertiary activity (-0.2%). The new information comes from the public sector (-0.1%) and construction (-1.7%). On the latter, the recovery in building activity following the policyinduced air pocket of last year looks to have stalled.
Canadian retail sales up 0.4% in May. Higher gasoline prices supported the report; clothing sales fell 0.7% and food sales were flat.
Outlook
We continue to like NZD/USD lower multi week especially on a TWI basis. However, the pair is likely to range trade now ahead of tomorrow’s all important RBNZ announcement.
Published on Wed, Jul 23 2008, 06:11 GMT
The main news was oil and equity related
Tue, Jul 22 2008, 06:05 GMT
by Westpac Institutional Bank Team
News and views
The offshore session was again relatively quiet last night. The main news was oil and equity related. London morning traders were concerned about a potential bounce in oil following the lack of progress in weekend talks with Iran. This saw the USD offered before better than expected Bank of America results which helped Wall St open firmer. This sparked USD recovery but as stocks lost steam, the greenback settled down again to be little changed overall. The New Zealand dollar was relatively soft all night, slipping below 0.7600 before a flicker higher in late NY.
The Australian dollar was driven by the USD but was largely directionless, trading a tight range of about 0.9740/0.9768.
USD/JPY was the biggest mover of the majors, both down on the softer USD early and then back up again as risk appetite improved – the range was 106.37/107.15.
EUR/USD found little European news to inspire it and traded a 1.5832/1.5909 range, finishing NY on a firm note as US equities faded late.
US leading index slips 0.1% in June. Quite a weak result, because it was distorted upwards by building permits which were boosted by the scramble to get apartments approved before the July 1 change to the building code. That component added 0.3 ppts to the index whereas it would have subtracted nearly 0.2 ppts if permits had fallen in line with the fall in single family permits in June. What’s more, the May result was revised down from a 0.1% gain to a 0.2% fall. That means that apart from a 0.1% rise in April, the leading index has been flat or falling consistently since October last year, consistent with the view that H2 2008 will be a tough time for the US economy.
UK housing market news bleak. Rightmove, the property website, reported a 1.8% fall in house prices in July, and the stock of housing for sale was the highest on record. Bank of England dove David Blanchflower predicted a 30% fall in house prices and said the economy may already be in recession.
Outlook
We continue to like NZD/USD lower multi week especially on a TWI basis. For now, with a rate cut 70% priced for Thursday’s RBNZ meeting the NZD is likely to trade soft but the move should be more of a grind ahead of the meeting than anything more dramatic.
Published on Tue, Jul 22 2008, 06:05 GMT
The offshore FX session was very quiet Friday night
Mon, Jul 21 2008, 07:29 GMT
by Westpac Institutional Bank Team
News and views
The offshore FX session was very quiet Friday night. The main news was equity related – a better than expected earnings report from Citigroup (although still a loss, with $8bn in writedowns) saw Dow futures up from a low of -100pts to +50pts pre market open. This was largely given back in the first half hour of cash trading but eventually the Dow closed higher. USD made reasonable gains on some crosses from this but price action was not as striking as in bond markets, where Treasuries yields rose steeply. The New Zealand dollar found little inspiration from this, the pair easing from around 0.7640 to close NY at 0.7612.
The Australian dollar was also rather underwhelmed, trading a 0.9702/0.9739 range, perhaps softened slightly at the margin by falling commodity prices.
USD/JPY was more directional than most pairs, pressing firmly higher from 106.35 to 106.95, boosted by the third consecutive day of gains on Wall Street and talk of hedge funds being stopped out of short positions.
EUR/USD dipped on the Citi earnings but buyers emerged ahead of 1.5800. “Sources” stories revealed some hawkish ECB chat, helping the euro.
No US data to report.
Bank of Japan minutes. The minutes of the meeting of June 12 and 13 indicate es