News and views
US equities rose last night after the Fed curtailed some of its emergency support programs, and extended others. The S&P500 closed up 2.1%. Commodities rose, oil’s +2.3% fuelled further by a militant attack on Shell’s Nigerian pipeline. US treasuries gained after a very solid 7yr auction performance ended another successful auction week, the weaker jobless claims report also helping prices earlier. The 10yr closed 14bp lower on the day. In other titbits, Bernanke continued to take flak regarding the Bank of America/Merrill Lynch deal, Pimco agreed with Warren Buffet’s view that no green shorts were apparent, and Standard & Poor’s revised Credit Agricole’s AA- rating to negative outlook.
The US dollar index lost surprisingly little (-0.2%) given the decent equities performance. EUR dipped to 1.39 minor support during London, and then bounced to 1.40. Eurozone industrial new orders were weaker than expected. The SNB was said to have intervened again, producing only a brief spike in EUR/CHF during the London morning. JPY was stronger, rallying from 96.50 to 95.70.
AUD ranged sideways between 0.7935 and 0.8040, rumours of the RBA capping at 0.8000 not apparent from the price action.
NZD initially dipped to 0.6350 before recovering a cent. AUD/NZD ground to a 1.2520 high before reverting to the sub-1.2450 area.
US Fed chairman testimony. Mr Bernanke insisted that the Fed acted with the highest integrity with respect to the BoA-Merrill merger. He denied accusations of coercion, and of being uncooperative with the other regulatory authorities.
Major central banks tweak their emergency liquidity measures. In a coordinated announcement, the Fed announced the end of one of its emergency funding programs, trimmed two others, and extended three facilities from October out to February next year. The BoE, BoC, ECB, BoJ and other central banks also released details of modifications and extensions to, and windings up of, the various programs, facilities, swap lines and so on that have been introduced since the credit crunch began two years ago (in June 2007 when several Bear Stearns hedge funds went bust), in efforts to restore liquidity and relieve the banking sector of its troubled assets.
US Q1 GDP growth revised from –5.7% annualised to –5.5%. This reflected tweaks to the contributions from net exports and inventories (upwards) and personal consumption (lower).
US initial jobless claims rise 15k to 627k. In the prior week, continuing claims rose from 229k to 6.738mn. Both outcomes are consistent with the labour market being in better shape than earlier this year, but they also suggest that the scale of improvement suggested by May’s payrolls report may not replicated in subsequent months.
Euroland industrial orders fall 1.0% in April. This weaker than expected outcome was the ninth consecutive monthly fall and left the annual orders pace down 35.5% yr, the lowest on record.
Outlook
NZD remains locked in a sideways range capped at around 0.65. Today’s Q1 GDP report will be a major market event. Our official forecast is -0.9% (consensus is -0.7%, RBNZ is -1.0%), acknowledging risks are to the upside. An outcome of 0.2% higher or lower than consensus would likely move the NZD.
