News and views
A weaker tone to risk markets overnight, attributed to declining confidence in US Treasury Secretary Geithner and his package, saw US equities open lower, and then largely track sideways. The S&P500 is currently down 2%, after Europe closed down 2.3%. Earlier, Japan’s Nikkei closed -3.3%, and is looking fragile above key technical levels. None of the US economic data ran counter to the negative trends in place – retail sales popped up for the month, but the smoothed trend remains downward, while lower inventories mean Q4 GDP growth will likely be revised lower to around -6% annualised. Moody’s released a report discussing the possibility of a major AAA sovereign, such as the US and UK, being downgraded due to growth shocks and balance sheet concerns.
NZD did break the recent 0.52 to 0.53 range, down to 0.5160, but failed to sustain the move, and is back at 0.52 again. RBNZ Governor Bollard’s speech this morning (8:30 NZT) may offer clues regarding his monetary policy thinking.
AUD slipped from 0.6560 to 0.6440, partly on the failure of the stimulus bill in the senate yesterday. Further analysis suggests it’s not as catastrophic as portrayed by some, and that a resolution is probable in the short term. AUD/ NZD moved sideways in a tight range around 1.2475.
EUR fell from 1.2940 to 1.2720, rebounding quickly to above 1.28 after the Moody’s report. GBP dropped from 1.44 to 1.4140, consolidating there, and JPY still likes the 90 to 91 range.
US retail sales surprise with a 1.0% rise in Jan. Retailing started 2009 with the first monthly gain since June 2008. It was a reasonably broad-based rise, with autos, electronics, food, clothing, non-store retailing, general merchandise and gasoline (due to higher prices) all posting gains of over 1%. Furniture and building materials remained steeply negative however, consistent with housing weakness. Our preferred measure of core retailing (ex autos and gasoline) rose 0.8%, although as with the headline rise, that failed to reverse even half of the previous month’s decline so retail trends remain very weak.
US initial jobless claims edge down from 631k to 623k. Claims remain close to their 29 year highs, while in the prior week, continuing claims rose to a fresh all-time high. Both outcomes are consistent with ongoing job market melt-down.
US business inventories fall 1.3% in Dec, confirming that the stock-building contribution to Q4 GDP growth will need to be revised lower. Along with other component revisions, that means GDP growth is likely to be cut back sharply from the advance 3.8% annualised decline to closer to a 6% annualised fall.
Euroland industrial production drops 2.6% in Dec, consistent with weak national data, to be down 12.0% yr, stark evidence of the impact on Europe of the global trade freeze in Q4.
Protesting INSEE statisticians have leaked the Q4 GDP report. The French economy shrank 1.2% last quarter, in line with the consensus estimate. No more detail is available at this stage.
Outlook
NZD has fallen 3 cents since the Geithner package, and a healthy correction, to no higher than is 0.53 is due. Over the next 24 hours, 0.5150 to 0.5250 is likely, with an outside chance of 0.53, before a resumption of the downward trend. Q4 and December retail sales are released this morning, and are closely watched by currency traders.
