News and views
US equities were again unloved ahead of earnings week, and expectations appear to be drifting towards the negative, Alcoa’s -38cps an example. The S&P500 closed down 0.2%, banks (-2.1%) leading the decline, sitting at much watched moving average and neckline support levels. Commodities fared poorly, oil down 4.5% (inventories still rising), and copper down 3.5%. The US administration downplayed talk of a second stimulus package. US interest rates fell across the curve, 5bp in the 2yr, and 15bp the 10yr treasuries. A 10yr debt auction attracted surprisingly solid demand.
Aversion to risk currencies, rather than an attraction to US dollars (the dollar was not on the G8 agenda), seemed to be the story of the evening, USD/CHF barely changed. EUR lost around a cent after NY opened, to 1.3835. GBP lost nearly 1.5 cents to just below 1.6000. JPY was a magnet for flow in the standout performance of the evening, rallying from just above 94, where it ranged during London, to just below 92.
AUD also ranged just above 0.7850 after Sydney closed, but plunged 1.5 cents once equities showed their colours, currently resting around 0.7750. Chinese buyers were reported to have cancelled Australian coal shipments.
NZD poked its head briefly above 0.63 before the joining the fray and dropping to 0.62. AUD/NZD declined throughout the evening to 1.2420.
Japanese machinery orders fell 3.0% in May, now down 38.3%yr. At the very great risk of boring myself, it is worth noting yet again that there is no incentive to add new productive capacity, or upgrade aging facilities, when demand levels have fallen so dramatically below the ability to supply. Machinery orders will reflect this basic reality for at least a year or so, as excess capacity is slowly absorbed by a ponderous grind higher in demand. Also today, the May current account widened, with the trade position improving on the back of consolidating exports, while bank lending decelerated from 3.1%yr in April to 2.4%yr in May.
Euroland GDP growth unrevised at 2.5% in Q1. This is old news. focus is now on Q2 GDP which we forecast to have declined by about 1%. The advance Q2 report is due August 13. In other news, German industrial production jumped 3.7% in May, its second rise in three months and strongest monthly gain since 1993.
UK house prices down 0.5% in June, according to HBoS, for a –15.0% yr annual pace. Other private sector reports included June shop prices from the BRC slowing from 1.3% yr to 0.7% yr; and consumer confidence from the Nationwide, which jumped from 54 to 58 in June.
Outlook
Global risk aversion has been gradually rising during the past few weeks, pointing to a negative environment for NZD. 0.6300 should cap the currency today, 0.6200 looking vulnerable for amove to 0.6130. New Zealand’s card spending report for June will be of minor interest today, but Australian employment data should be a market-mover.
