News and views
US equity investors digested the mixed economic data yesterday with less optimism than during recent weeks, and closed the session in the red, the S&P500 down 0.3%. Downbeat consumer confidence and disappointing quarterly results from US Steel and Office Depot dominated the upbeat Richmond Fed index. US treasuries were mixed, 2yr notes faring worst (+4bp) after a lacklustre auction, but 10yr notes gaining (-3bp) on the consumer confidence data. 3mth Libor edged down 0.5bp to 0.49%. Oil (-1.6%) and copper (-0.3%) were also data affected.
The US dollar index (DXY) formed a key day reversal (pointing higher) during the NY session, and we note the previous signal on 3 June marked the start of a three day rally worth 4%. EUR, too, forms a reversal signal (downwards), its range of 1.4130 to 1.4305 spanning Monday’s action, and the current level of 1.4170 near the day’s low. Unsubstantiated rumours of a Latvian Lat devaluation, a condition of the confirmed IMF and EU loans, added downward pressure. GBP was downhill from Sydney’s close, from 1.6555 to 1.6390. JPY firmed throughout from 95.20 to 94.05, Japanese exported reportedly selling.
AUD peaked at 0.8338, sliding to 0.8224 before a NY bounce to 0.8285. Commentators McCrann and Robertson published hawkish views post-Stevens, with limited impact on the currency.
NZD peaked at 0.6634 at the London open, a 2009 high by a pip, but once again it failed to follow through and headed back to close NY around the mid-0.65’s. AUD/NZD’s recent march higher ran into congestion between 1.2550 and 1.2600.
US Richmond Fed survey rises to 14 in July. The Richmond Fed factory index stands out over the last three months as being the first and thus far only regional manufacturing survey (from the Fed or the private sector) to indicate clearly accelerating industrial activity, rather than merely a diminished pace of contraction. Its equal strongest reading since September 2007 reflected soaring orders and sharply higher shipments, and jobs are falling at a sharply diminished pace. The Richmond survey also includes services (improved from –25 to –15) and retail (up from –18 to –15) components so the apparent factory upswing does not seem to have spread to clear optimism in other sectors, although pessimism has diminished.
US Conference Board’s consumer confidence index fell for the second month running in July, to 46.6, and as in June, both current conditions and expectations deteriorated. However the last two monthly declines worth 8.2 pts have only partially unwound the CB index’s two month gain of 29 pts (the steepest rise since at least the 1970s) recorded for April-May. So confidence is still significantly improved relative to earlier this year when financial Armageddon and economic meltdown were more serious risks. That said, consumers’ assessment of the job market fell to a new cycle low in July, which is consistent with our view that unemployment is still rising. Having risen in June, consumer plans to buy a home within six months slipped a little again in July.
US S&P Case Shiller house price index posted its first monthly rise since July 2006 in May. That saw the annual pace of price decline, which troughed at –19.0% yr in January, rise to –17.1% yr in May. This result adds to other indicators including new and existing home sales, homebuilder confidence and starts/permits figures which all suggest the housing market has begun to turn, after up to four years of falling activity and prices.
UK retail report from the CBI showed reported sales modestly less weak at –15 in July, but still well down compared to April which was boosted by the timing of Easter and unseasonally warm weather. That said, the trend pace at which retailing is declining on this measure has abated since Q1 this year, when the CBI survey averaged –39, a message backed by recent official data which showed some strength late in the second quarter (though weather distortions may have been in play then too).
Outlook
The NZD/USD’s failure to close above 0.6635 is a concern for the bullish case, and the reversal signals for DXY and EUR should be monitored during the next NY session for any prophetic value. Recent price action has established support and resistance boundaries at 0.6540 and 0.6635, today’s expected range. This morning’s building permits report for June should reverse some of last month’s spike, while the more important July business confidence survey this afternoon could be NZD-supportive.
