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Japanese June all−industry activity index fell 0.9%

Thu, Aug 21 2008, 05:58 GMT
by Westpac Institutional Bank Team

Westpac Institutional Bank

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.

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Published on  Thu, Aug 21 2008, 06:22 GMT