News and views
Risky asset classes remained stuck at key technical levels for another day, as earnings reports failed to inspire hesitant investors. Morgan Stanley lost more than consensus, and Wells Fargo disappointed overall. The S&P500, which had earlier spiked to 960, retreated and closed at 954, unchanged on the day and just shy of the key 956. Oil was subdued, but copper posted a 3% gain. Bernanke was grilled by Congress, but his published comments added nothing to yesterday’s testimony. US 10yr treasuries rallied on the earnings reports to 3.46%, but reversed track to 3.56% on the S&P500 spike, as well as reported mortgage paying.
Currencies were little change on the day. EUR dipped to 1.4155 and then spiked to 1.4255, settling at 1.4220. GBP initially underperformed again, falling to 0.6340, but clawed back to 1.6500. The BoE reported little change to its medium term outlook since May, adding near term GDP downside risks had been reduced. JPY was less volatile, sitting in a 93.10 to 93.85 range.
AUD fell to 0.8100 around noon London, but then spiked to 0.8204, falling back with risk to settle around 0.8160. The RBA’s Debelle comments were supportive of yesterday’s McCrann piece, although analyst Rory Robertson later dampened with a less hawkish article.
NZD spiked to 0.6630, aggressive buying of NZD/NOK by one name seen, but trading is back under the key 0.6600 as we write. That aggressive move sent the AUD/NZD cross down to 1.2360.
US house prices up 0.9% in May. More positive news on the housing market, with established house prices up sharply back in May. On this measure, prices are down –5.6% yr compared to –7.0% yr in April. This survey covers homes that have been sold at least twice and have mortgages financed by Freddie Mac/Fannie Mae, but has low coverage of foreclosed properties.
Fed chair Ben Bernanke repeated yesterday’s semi annual monetary policy report testimony today. In the Q&A he said that he would like to consider putting “consumer protection in the Federal Reserve Act along with full employment and price stability as a major goal of the Fed”. He earlier acknowledged that the Fed had been “not quick enough... not aggressive enough” to address consumer issues earlier this decade.
European factory orders are still falling – they have not posted a monthly gain since July last year – but the pace of decline has slowed dramatically from the 7–9% plunges recorded in each month of Q4 last year to –0.2% in May. But that is still a very weak picture – there is no sense whatsoever of any recovery in orders, so the outlook for European industry remains very bleak.
UK CBI factory survey results were mixed in July, with total orders slipping to their lowest since early 1992, but export orders less weak, implying a softer domestic picture. However the quarterly business optimism survey improved quite markedly, on the back of an improved export assessment. The CBI’s own spin on the results was that “the road out of recession will be long and slow”.
The minutes to the Bank of England’s July policy meeting revealed that “little evidence had emerged since May to change the Committee’s view about the broad shape of the prospects for the economy in the medium term, although the downside risks to GDP in the near term had probably diminished.” The decision to continue spending the last £13bn of the £125bn asset purchases already announced but with no expansion of the program (yet) and no change to the 0.50% bank rate was unanimous 9:0.
Canadian retail sales rose 1.2% in May, driven by a 2.4% jump in automotive sales (including 0.9% for gasoline) and generally positive reports from other storetypes, with the exception of apparel which has not posted a rise since January.
Outlook
A break above the important 0.66 resistance level appeared likely a few hours ago, but failed to sustain itself. In the wake of the flattish close in the S&P500, action should again be contained by 0.6500 and 0.6600, with the latter the vulnerable point.
