News and views
US equities finally broke above the key 956 level, opening strongly and holding the gains at the close, to be up 2.3%. US economic data was slightly better than expected. A poor after hours earnings result from Microsoft knocked risk backwards, though, the S&P500 futures losing around 1%. Oil futures gained 2.0%, but copper lost 1.2%. US 10yr treasuries were sold heavily, up 20bp to 3.71% and settling at 3.65% a few hours ago. The Fed’s Fisher said the economy was stabilising such that further QE stimulus was unwarranted.
Curiously, the US dollar was bid during the NY session, well before the Microsoft dampener, perhaps pointing to underweight positioning, particularly against the commodity currencies. EUR peaked at 1.4290 after NY opened, but was then sold quickly to 1.4120. GBP fell from its session high of 1.6585 to 1.6485, after earlier strength courtesy of bullish BoE comments and strong retail sales data. JPY was weaker throughout, reaching 95.30.
AUD made its 0.8223 high at the NY open, and spent the session falling back to 0.8110.
NZD made a double top at 0.6629, and then quickly fell a cent. AUD/NZD nudged gradually higher to around 1.2420.
US existing home sales up 3.6% in June. Sales posted a third consecutive gain in June, the longest string of positives in exactly five years, although May’s increase was revised down by 1.1 ppts. To put this upswing into perspective, the June annualised sales pace of 4.89mn is up 8.9% from the January low, which was down 38% from the September 2005 peak of 7.25mn.
US initial jobless claims rose 30k to 554k last week, most likely the start of the upward correction following the sharp declines caused by the seasonal factors adjusting down the data because annual new model retooling layoffs were less than normal because of earlier permanent layoffs at the bankrupt automakers. For the same reason continuing claims should correct higher in next week’s report.
Japan’s trade balance widened in June. The seasonally adjusted balance came in ¥438bn in surplus, up from ¥222bn in May. The unadjusted surplus was ¥508bn, around ¥100bn below expectations. Nominal exports fell 35.7%yr, up from -40.9% in May. Nominal imports fell 41.9%yr, up from -42.4%.
Euroland current account remains in deficit but it has narrowed substantially in recent months to €1.2bn in May, consistent with the recent return to modest surpluses on the trade balance.
UK retail sales rose 1.2% in June, more sharply than our above consensus forecast, with the detail consistent with the hot weather boost to sales captured in the various private sector retail surveys.
The number of new mortgages approved by UK banks rose to a new 2009 high of 35k in June, consistent with reports that home loans are somewhat less difficult to get than earlier this year. Approvals bottomed out at 18k per month in November last year (down from the 87.5k peak earlier this decade). Industry wide data will be published by the Bank of England next week (the banks currently have a two-thirds share of new approvals).
The Bank of Canada’s monetary policy report expanded upon Tuesday’s rate window statement and revised economic forecasts. The BoC’s base-case projection now sees growth in the Canadian economy resuming in the third quarter of 2009, one quarter earlier than anticipated in the April Report.
Outlook
NZD has broken above the key 0.6600 level, which argues for much higher next week. The after-hours equities reversal may cap price action today, though, and 0.6500 to 0.6630 should contain NZD.
