News and views
The talk of the evening was Goldman Sachs’ Q2 earning per share of $4.93, much better than the $3.65 consensus. That was the main driver for a small spurt in S&P500 futures, but in a textbook case of the fact being sold (Whitney yesterday provided the rumour), equities then stalled. The S&P500 is up 0.4% as we write, but banks are down 1.9%. US 10yr treasuries reacted poorly to the elevated risk tone, as well as stronger PPI data, adding 12bp to their yield.
The US dollar was little changed since Sydney closed. EUR attempted to break beyond 1.4000 several times, but failure saw it eventually decline to 1.3910. The German ZEW survey was weaker than expected, both current and expectations measures, but had no market impact at the time of release. GBP reached 1.6350 London morning, slipping to 1.6240 thereafter. New BoE MPC member Posen made some noteworthy comments, hinting that QE expansion remains a possibility. JPY was subdued just above 93, but threatens a move higher as we write. CAD was the only major top show real direction, rallying from 1.1520 to 1.1350 in a steady path littered with stop-losses.
AUD rallied during London from 0.7850 to 0.7920, but only congested in a 50 pip range thereafter. The Rio Tinto story widened its scope to include BHP, stories of Chinese investigations of “irregular trading” doing the rounds.
NZD made even less headway, topping out at 0.6375 and then hovering below that. AUD/NZD continued higher to a 1.2400-1.2450 range.
US retail sales rose 0.6% in June, on the surface the strongest outcome since January’s 1.7% jump. However higher gasoline prices explained about half of the June gain (autos the rest), and core retailing ex autos & gas fell 0.2%, its fourth straight monthly decline (with May revised down by 0.2 ppts from 0.1% to –0.1%). The detail in the report was unremarkable, with no storetype posting a better than 1% gain (outside of autos and gas). Department stores were the standout losers, down 1.3% in June, their fourth straight fall.
Still on the US consumer, the IBD-TIPP economic optimism index fell from 50.8 to 46.3 in July, its weakest reading since March, more or less replicating the slippage in the Uni of Michigan consumer sentiment index preliminary July reading from last week. Also the weekly retail reports were soft in the first retail week of July, with Redbook down 1.7% and chain store sales down 0.9%.
US PPI jumped 1.8% in June, with gasoline up 18.5% in the month but pressure also coming surprisingly from a 2% jump in wholesale auto prices and a 3.4% surge for light trucks. Without those gains the core PPI would have risen 0.1% rather than 0.5%.
US business inventories fell 1.0% in May which was a slower pace of decline than in prior months, though that was because energy stocks were rising in price. In volume terms, stocks look like being a further drag on economic growth in Q2.
German ZEW headline expectations fell from 45 to 40 in July, first decline since October last year. Euroland IP posted its first gain since August, though it’s May rise of 0.5% was less dramatic than Germany’s 3.7% IP jump reported last week.
UK annual inflation eased further in June, falling to 1.8% yr, below the 2.0% target for the first time in nearly two years, thanks mainly to favourable base effects and less impact from Sterling weakness.
Canadian auto sales rose 1.0% in May, in line with previous guidance from StatCan. Their guidance for June was for sales to fall about 1%.
Outlook
The much awaited US earnings highlight (Goldman Sachs) boosted risk only slightly (it had been telegraphed yesterday), and NZD remains stuck around initial resistance at 0.6350, and certainly under 0.6400 which we expect to hold today. If anything, NZD could slip today towards 0.6200, NZD 3.4 billion worth of Eurobonds maturing today. Only a small portion of that amount would exit the currency (if it hasn’t already), but it’s worth watching for.
