News and views
US earnings continued to support equities. The S&P500 spent most of the session unchanged from yesterday, until a consensus beating JP Morgan result (28c vs 5c per share) pushed it into positive territory, and is currently up 0.8%. Oil hasn’t fully participated in this week’s bull moves, last night’s 0.5% loss another example. Copper futures are flat. US10yr notes are 4bp lower from Sydney’s close. US data was mixed – the Philly Fed survey disappointing, but headline jobless claims better (although seasonally distorted), as was housing data.
Currencies generally made further minor gains during London, but failed to follow through. EUR made a weekly high of 1.4165, sovereign names reportedly selling around there to push it back to 1.4100, but the JP Morgan result seeing it test 1.4150. GBP almost touched 1.6480 before resting at 1.6400 for another bounce. The IMF said Gordon Brown’s fiscal plans risked pressuring the pound. USD/JPY fell to the 93.50 area.
AUD spiked to a weekly 0.8067 high at noon London, fell back to 0.8000, and jumped to 0.8050 an hour ago.
NZD was one which failed to make a weekly high last night, weighed by yesterday’s surprise Fitch ratings warning (negative outlook), chopping around the 0.6450 level. AUD/NZD showed no direction, ranging between 1.2385 and 1.2455.
US Philadelphia Fed survey fell back to –7.5 in July, coming in very close to our low end –8 forecast (in the same way that Wednesday’s NY Fed rose sharply to just shy of Westpac’s top of the range forecast!). Although orders improved slightly, shipments turned negative again and the jobs measure actually weakened for the first month in four. This stark contrast with the surge in the NY Fed reverses the June situation when Philly soared but NY weakened. It does not, however, detract from the underlying trend improvement apparent in most US business surveys, as they move from deep recessionary levels to something approaching stabilisation or “bottoming out”.
US initial jobless claims fell sharply again, down 47k to 522k last week, their lowest level since January this year. However the BLS reiterated that the fall in claims is due to a seasonality distortion caused by many/most of the usual annual auto sector layoffs for new model retooling not taking place this year because there have already been substantial layoffs in the industry due to the bankruptcies of GM and Chrysler. If this is the case, it means the dip in claims, which should be temporary, is a misleading signal of job market strength. In the previous week, continuing claims also plunged dramatically for the same reason.
US net capital inflows slowed in May but the detail showed China buying $38bn of Treasuries (vs a small fall the previous month) which adds weight tot the view that the Chinese aren’t about to cease supporting the US bond market. Recent mostly successful Treasury auctions suggest that the TIC data should firm again in June.
US NAHB homebuilders’ sentiment rose from 15 to 17 in July. This is the highest level since last September, although it remains at extremely depressed levels. Lower mortgage rates and a tax credit for first home buyers appear to have stirred up activity a little, but sales of new homes still face stiff competition from the overhang of recently-built and foreclosed homes.
Japanese May tertiary activity index. The May index contracted by 0.1% from April. That was lower than expectations of +0.4%, but is readily explicable as a reversal of the prior month’s 2.2% rise and the generally embattled state of both Japanese consumers and non-manufacturing businesses.
Outlook
The NZD remains supported by global sentiment, even after a credit rating warning. The bias today is positive, with 0.6550 providing strong resistance. Any dips should stall at 0.6400. Longer term, we hold our negative NZD view as long as 0.66 is not breached.
