News and views
USD bashed again amid positive sentiment. The USD index’s modest 0.2% fall masked large gains in risk currencies, offset by falls in the yen and euro. US ISM data improvement gave equity investors cause to lift the S&P500 2.6%, while General Motors’ official bankruptcy removed uncertainty surrounding the car-manufacturer. Its fall from grace was underlined by its removal from the Dow Jones index (as was Citigroup). The S&500 is now up 42% from its Mar-09 low, and has broken a 200-day moving average. US 10 year treasuries, like the dollar, were also battered, to the tune of 25bp – an eight-month record loss.
EUR broke above 1.42 after the Sydney close, and gyrated +/-50 pips of that level. GBP followed, to 1.6400 initially, before mounting an assault on 1.6500 during the NT session. USD/JPY sank to 94.45 at the London at the London open, but then rocketed to 96.80 after noon.
AUD was sold during the London session to 0.8065, rallied to a 0.8155 high during NY, and is currently sitting above 0.8100. Terry McCrann wrote the RBA will remain on hold today (which is consensus).
NZD reached 0.6565 mid NY afternoon, which is approximately a 50% retracement of the move from 0.8215 (Mar-08) to 0.4895. The break below 1.2500 late Sydney led to the next support level at 1.2400 being attained by AUD/NZD.
US ISM factory index up from 40.1 to 42.8 in May. The ISM survey continued to steadily improve from its November low-point in May, although it is still well below the neutral 50 level and hence implies a still rapid pace of industrial decline. Bright spots in the report were the modest growth in orders, back above 50 for the first month since November 2007; the decent 5.6 pt rise in production albeit to a still negative 46; and the further improvement in exports to a closer to neutral 48. Less favourable was the slight slippage in the employment index by 0.1 pt to 34.3.
US personal income up 0.5% in Apr. Personal income was much stronger than expected, ironically due to higher unemployment and increased transfer payments to job losers. The disposable income measure also recorded a relatively steep rise due to the falling tax payments to the taxman as income growth has slowed. But wages and salaries did not grow at all, and personal spending was soft, about in line with expectations. The core PCE deflator rounded up to 0.3% in April.
US construction spending posted a second consecutive monthly gain in April, of 0.8%, way ahead of expectations. It was driven by private non-residential spending although residential rose 0.6%, its first gain since August last year. That is a little surprising given the steep back to back falls in housing starts in March-April - but this series is usually subject to substantial revision.
Japanese April cash earnings improve to -2.5%yr. That compares to a -3.9% outcome in March. The labour market is in a phase of outright contraction, with applicants outnumbering openings by more than 2 to 1. Profits are down sharply, limiting potential for bonuses. So, with regular and irregular labour income in reverse, nominal earnings are crashing.
A modest factory PMI upward revision from 40.5 to 40.7 but Euroland is still one of the weaker performers compared to the other PMI factory surveys released today around the globe.
UK factory PMI up from 43.1 to 45.4 in May. As with most factory PMIs from around the world, the UK index was stronger in May, for the third month running, implying a slower pace of contraction in the industrial sector so far in Q2, compared to earlier this year.
Canadian GDP fell 5.4% annualised in Q1, more or less matching the pace of decline recorded in the US economy last quarter. It was the deepest quarterly slump recorded since 1991, and confirms that Canada is in technical recession.
Outlook
The NZD attained our 0.6550 technical target, and shows no signs of making a top, so that further gains are possible. The next session or two should see some profit-taking, though, and a pullback to around 0.6400. This week is light data-wise, so any catalysts will likely come from Australia and the US.
