News and views
Currency momentum continues. The US dollar was sold again, the index down 1.0%. US home sales data was supportive of risky currencies, and a media comment claimed Russia said it would discuss a new supra-national world currency at this month’s BRIC summit. US equities made little further headway, the S&P500 closing up 0.2%, but banks suffered a 3.2% loss on fundraising plans. Credit markets were strong, noting US bank (JP Morgan, Amex etc) plans to raise funds to repay the government. US 10yr treasuries rebounded a modest 3bp after the heavy selling of recent sessions.
EUR initially dipped from 1.4130 to 1.4100, Eurozone’s 9.2% unemployment rate a Sep-99 high, and France’s economic minister arguing jobs were more important than deficits, but recovered strongly by noon London to reach a new 2009 high at 1.4325. GBP also sagged earlier on news Abu Dhabi investors plan to sell their £4 billion stake in Barclays, but went on to a 1.6590 high, better mortgage approvals data helping. JPY strengthened from 96.50 to 96.35 against the USD.
A Terry McCrann article, post-RBA, spoke of concerns regarding yield curve steepening, also relevant for NZ. AUD accelerated to a new high at 0.8230 during the NY session, as did NZD to 0.6595, the weak Fonterra auction having little effect. AUD/NZD lacked direction, ranging between 1.2460 and 1.2520.
US pending home sales up 6.7% in April. This was the third consecutive monthly gain for this series, the longest string of positive outcomes since 2004. It seems that sharply lower house prices are enticing buyers back into the market, indeed some reports suggest that half of all sales currently are distressed at knock-down prices. Still, lower prices are what is needed to clear the glut of homes for sales, so in that sense this report is positive news.
Euroland unemployment rate 9.2% in April. That represents a 2 ppt rise from 7.2% in March last year; half of that increase was in the first four months of 2009.
UK credit growth sluggish but positive. Net consumer credit was up £300mn in April, very weak by historical standards, but the strongest for the year so far, while mortgage lending rose £1bn, including 43k new mortgages (but still down 68% from the peak earlier this decade). The construction PMI rose from 38.1 to 45.9 in May, indicating a much slower pace of contraction in that sector.
Outlook
Upward momentum in NZD remains intact, but another correction (in the manner of yesterday’s 0.6565 to 0.6445 pullback) today to the 0.6500-0.6550 area would not surprise. Last night’s weak Fonterra auction result, which will likely receive media attention this morning, is one potential catalyst.
