News and views
Markets rebounded during the early US session after stronger than expected (but still weak) ISM data. Before that release, risk continued to be sold, and European equities in the UK and Germany ended down 2%. The US S&P500 opened lower, but clawed back to end roughly flat. Commodities weren’t convinced by the direction of equities, copper and gold closing down 2%, oil -1%. US treasuries responded to the weaker aspects of the data, and China’s Premier quoted supporting US treasuries in the Financial Times, rallying 8bp. The US dollar index was little changed.
NZD reached the 0.50 target we had called for last year, dipping as far as 0.4960, before rebounding to 0.5075. The weaker labour cost report yesterday would not have deterred sellers in Europe last night.
AUD also made a new 2009 low during Europe’s morning to 0.6250, Prime Minister Rudd’s indications of a budget deficit for 08/09, and a potential 100bp RBA rate cut today, weighing it down. AUD/NZD tried to grind higher, but 1.26 was all it could muster, falling back to strong support at 1.25.
EUR formed a base around 1.27, before rebounding to 1.29. Le Monde reported France’s Sarkozy’s concerns regarding the cohesion of the Euro area. GBP’s rebound was the sharpest last night, falling to 1.4050 and powering up to 1.43. Moody’s has earlier announced downgrades of Barclays Bank ratings. JPY bounced between 89 and 90, settling in familiar territory at 89.50.
US ISM factory survey up 2.7 pts to 35.6 in January. The factory ISM lifted off its December low point in January, consistent with the “less weak” regional Fed surveys last month (but not the weaker Chicago PMI). Most of the activity components showed some recovery, except for the employment index.
US construction spending down 1.4% in December. Construction spending fell more steeply at the end of last year as the non-residential component turned negative. Residential spending continued to fall away sharply.
US December personal income and spending figures were consistent with quarterly data published last week, as was the flat core PCE deflator, actually down slightly each month through Q4 before rounding.
The Euroland factory PMI for January was revised down marginally from 34.5 to 34.4, slightly reducing the size of the January upswing. The factory PMI remains at deeply recessionary levels. Also the factory PMI for the UK recovered a little from 34.9 to 35.8 last month but remains deeply recessed.
Outlook
NZD/USD breaking below the 0.50 level won’t be easy, price action for the next few sessions likely to see a 0.50 to 0.52 range. The bigger mover today may be AUD/NZD, which is poised to fall below 1.25, unless the RBA disappoints.
