News and views
US equities made a new 2009 high (S&P500 touched 956, closing 0.6% higher), attributed to the stronger retail sales and jobless claims data, as well as stronger commodities. Energy shares led, after an agency raised its oil demand forecast for the first time in 10 months, pushing oil 1.6% higher. Metals also performed, copper up 3.0%. The 30yr US treasuries auction was solid, assuaging fears over supply, and the benchmark 10yr note rallied by 9bp. Moody’s added its own cautionary notes to the ongoing discussion on potential Latvian devaluation. ANZ (parent) priced a 3yr USD bond with a government guarantee at around swap + 28bp, signalling the ongoing contraction in credit spreads.
The US dollar fell broadly on the upbeat sentiment, the DXY down 1.0%. EUR spent the London morning sliding to 1.3945, the afternoon rising to 1.4180. GBP marched higher to a 1.6620 high. USD/JPY spiked to 98.55 in line with the early dollar strength, but then dropped to 97.30. Canada’s central banker said they are watching the CAD’s rise closely, after it touched 1.0950.
AUD went along with the weak dollar/strong commodities themes to reach 0.8235 in a steady march.
NZD broke 0.6400 resistance easily and made a 0.6470 week high, yesterday’s RBNZ pause adding further fuel. AUD/NZD remained in its lower 1.2650 to 1.2750 domestic range.
US retail sales up 0.5% in May, on the surface the strongest outcome since January’s 1.7% jump, although 0.4 ppts of that rise was due to higher gasoline prices (where sales rose 3.6%). Retail auto sales also rose 0.5% last month, their first rise since January, consistent with industry data which suggest that auto sales might be finding a base (at very weak levels). Core retailing rose just 0.1% in May after falls in the prior two months. The detail breakdown showed the first rise in building materials sales for the year, up 1.3%, the fastest rise for any storetype (outside gasoline stations). But elsewhere sales posted just modest gains or declines in about equal measure. Overall the report is best described as unimpressive but not especially weak; back revisions were modestly favourable too.
US business inventories down 1.1% in April. The 1.1% fall in business stocks in April reflected 1.0% lower retail stocks, on top of previously reported declines in factory and wholesale inventories. Back revisions were negative. No evidence here of any significant mitigation of the drag on GDP growth from inventory run-down in early Q2.
US initial jobless claims fell 24k to 601k. Claims renewed their weekly decline last week, providing further evidence that the pace of job shedding in the US economy is moderating. Also, the ongoing upswing in continuing claims has slowed from a 542k increase through April to less than half of that, 229k, in May.
Canadian capacity utilisation in industry fell steeply from 74.9% in Q4 last year to 69.3% in Q1, a new record low (this series stretches back to 1987), reflecting the slump in Canadian economic activity, which to date has been concentrated in the goods-producing sector.
Outlook
Yesterday’s RBNZ meeting outcome was disappointing for NZ rates markets, the 2yr swap selling off (rates higher) by 30bp, and we expect more speculative positions to be closed today, raising rates even further. The NZD will be supported by the higher yields today, and having breached the 0.6400 level is now heading towards 0.6600.
