News and views
US equities took a breather last night, initially climbing modestly higher on the positive data, but falling on profit-taking near the close. The S&P500 is unchanged with an hour to go. Downward revisions to US personal income and subdued PCE inflation placed a brief cap on risk, but stronger pending home sales later revived investor appetite. Oil is largely unchanged, but metals recorded gains of 1% or more. US 10 year treasuries rallied by 4bp on the PCE data, then slipping by 14bp on the home sales report.
The US dollar spent the evening consolidating just above its recent low, making for lacklustre price action in most currencies. EUR formed a narrow 1.4370 to 1.4430 range near its recent high. Similarly, GBP was contained by 1.69 and 1.70. USD/JPY is unchanged around 95.30, masking a 1 cent dip at the London open. USD/CAD produced some excitement after Canada’s finance minister spoke of dampening the currency’s rise, pushing the pair a cent higher to 1.0765.
AUD’s recent outperformance saw it hit by profit-taking after the Sydney close, falling from 0.8440 to 0.8385, before rebounding back during London’s afternoon.
NZD was bound by 0.6647 and 0.6690,with and AUD/NZD ranged between 1.2590 and 1.2650.
US core PCE deflator 1.5% yr in June. The quarterly totals for spending, income and the deflators were published in last week’s GDP report for Q2, so there was only limited new information in the June report, mostly related to back revisions. The steep fall in personal income reflected the one-off May social security payment dropping out of the numbers. The spending rise of 0.4% was consistent with retail and auto sales figures for the month. The core PCE deflator was revised down from 1.8% yr to 1.6% yr in May and eased slightly further in June, leaving in place a more pronounced downtrend than was previously the case.
US pending home sales up 3.6% in June. Pending home sales rose even more sharply than our above consensus 2% forecast, adding to the growing body of evidence pointing to a clear turning point in the US housing market, across sales, construction, sentiment and prices. June’s gain was the fifth straight rise; all regions recorded increased sales.
Euroland producer prices kept falling in June, down 6.6% yr, maintaining the recent trend, although after July, base effects will start to push the annual PPI rate of change less negative.
UK construction PMI bounced sharply in July after June’s temporary setback. While a stronger outcome, at 47.0 it still implies sectoral contraction, unlike the manufacturing PMI which rose above 50 and the services PMI which has been in expansion mode since May (July result due tonight).
Outlook
Fonterra’s milk powder auction results (just released) saw the average price 26% higher than last month, outpacing expectations, which is likely to be bullish for NZD today. A move towards 0.67 is expected, with 0.69 during coming weeks.
