News and views
No gains for risk. Equities marked time again, the S&P500 lower at the open, attributed to consumer confidence data slightly weaker than consensus, but clawing back losses near the session’s end to close up 0.1%. That’s the 10th consecutive day it has failed make any headway, despite continually pushing against the key 950 level. Nasdaq’s -0.5% and the Dow transport’s -.1% were minor divergence signals Copper was 2.9% weaker, oil -0.9%, as weak Eurozone IP data questioned growth expectations, and the US dollar strengthened by 0.8%. US 10 year treasuries were initially sold, but then supported by the Japanese Finance Minister saying Japan’s confidence in treasuries is unshakeable, to close down 6bp.Later, Russia’s Finance Minister saw no changes in their reserve allocation, in contrast to central bank comments last week. The weekend’s G8 meeting noted early signs of improvement, but also uncertainty.
Risk currencies were generally flat to slightly weaker, their 3 June peaks holding for now. EUR fell from 1.4100 to 1.3935, recovering to 1.4010. GBP fell to 1.6335, then rallied to 1.6445, supported by the $6.6bn Blackrock purchase of BGI, as well as BoE’s Dale talking of exit strategies. JPY weakened slightly from 98.00 to 98.45 against the dollar.
AUD dipped from 0.8150 to 0.8060 around midday London, before partially bouncing back again.
NZD did likewise, 0.6425 to 0.6360 to 0.6430. AUD/NZD was contained in a 1.2650 to 1.2700 range, until the last hour when it dipped under the 1.2650 support level to 1.2630.
US consumer sentiment edges up from 68.7 to 69.0 in June. The UoM index was little changed in early June, with respondents’ assessment of the current situation improved somewhat (consistent withy the less weak data flow recently) offset by some deterioration in sentiment towards the outlook. Inflation expectations were higher, probably reflecting the sharp rise in gasoline prices over the past month.
US import prices rose 1.3% in May, mainly due to higher oil prices, although recent US dollar depreciation also pushed up non-oil import prices by 0.2%, and may have contributed to the further gain in export prices.
Euroland industrial production down 1.9% in April, its twelfth month without a gain. Although the scale of monthly output decline has diminished a little since the end of 2008, over the past year output was down by more than a fifth, its steepest annual contraction on record. For an economy whose core members are driven largely by industrial activity and exports, this is a real and ongoing concern – no signs of recovery here yet, although orders data have been mixed rather than consistently weaker recently.
The Bank of England estimates that between 7%-11% of UK owneroccupier mortgagors were in negative equity (mortgages exceeding the value of the property) in the first quarter of this year. However, the vast majority of households had substantial equity in their homes and, for the majority of households who were in negative equity, the size of that negative equity was relatively small.
Outlook
While 0.6600 (the 2 June peak) holds, we prefer to stick with the view that NZD should move lower in the weeks ahead. The US dollar is now oversold, US data expectations are high and likely to be disappointed, and the RBNZ may look for opportunities to comment on the uncomfortably high NZD and term interest rates. On the day, we expect a range between 0.6360 and 0.6470.
