News and views
Equity investor optimism rose further last night, after CIT announced it had reached an agreement with bondholders, securing around $3 billion in liquidity for the struggling financier, and removing last week’s possibility of bankruptcy. In addition, Goldman Sachs’ chief US investment strategist raised his year-end outlook on the S&P500 from 940 to 1060. That index closed up 1.3% at 949, just shy of the 2009 high of 956 marked on 11 June. Datawise, the US leading index beat consensus. The usual correlations with commodities held, oil +1.2% and copper +2.0%. However US 10yr treasuries bucked the equities move, preferring Pimco’s call to buy duration, as well as China’s fondness for USD reserves, and staged an impressive turnaround from early London, rallying around 16bp to 3.57%. The Fed’s Lockhart gave the impression the execution of any exit strategy is some way off.
The US dollar lost around 0.9%. EUR gained a cent to 1.4250, and threatens a break higher. GBP outperformed, gaining 1.5 cents to 1.6550. JPY followed the treasuries move instead, strengthening from 94.80 to 94.20.
AUD closed the Sydney session at 0.8085 and continued higher offshore, reaching 0.8185 early this morning.
NZD broke above 0.6500, and later took out the 0.6550 resistance level, reaching 0.6580. AUD/NZD was stable between 1.2400 and 1.2460.
US leading index up 0.7% in June. This was the third straight rise in the LEI, the longest string of positive readings since 2004, though June’s gain was softer than the 1+% rises in April and May.
German producer prices down 4.6% yr in June. This was the fastest pace of decline since the late 1960s. With energy prices peaking in July last year, base effects should soon begin to soften the pace of PPI deceleration.
UK housing market continues to firm. English/Welsh house prices up 0.6% in July. The Rightmove index of asking prices for houses in England and Wales rose 0.6% in July, to be down 3.1% compared to a year ago (though up 0.6% yr in London). A separate report showed UK banks issuing more mortgages in June, up 6.1k to 51.1k.
Canadian wholesale sales down 0.3% in May. This was the eighth consecutive monthly decline in sales, but also the smallest.
Outlook
The NZD is perilously close to break above thee very important 0.66 resistance level, which would cause us to reflect on our medium-term negative-NZD view. Global sentiment has momentum, and there is nothing on the horizon this week which is likely to stall that. Locally, we have migration data this morning, and it is likely to show the upward trend in inward migration is intact, supporting the NZD. Today’s expected range is 0.65-0.66, with the upper bound vulnerable.
