News and views
Risk currencies maintained their firm tone last night thanks to supportive, but mixed, US data. The ADP payroll report produced a small negative surprise, denting equity investor sentiment and the S&P500 at the open, but the later factory orders report easily beat consensus, helping revive risk into the NY close. The S&P500 closed down 0.3%, but noteworthy is the +4.4% performance of the banks’ index. Oil was little changed, but copper ground 1.1% higher. US treasuries bounced around with the data, the 10yr note 8bp higher on the day.
EUR ranged wildly between 1.4355 and 1.4445, a disappointing retails sales report hurting, but has rebounded to the upper bound. A raft of strong UK data pushed GBP higher to 1.7043. JPY remained around its recent 95 consolidation zone. We note retail margin traders aggressively cutting JPY shorts. Moody’s reaffirmation of Mexico’s Baa1 rating boosted the peso 1.3%.
AUD bounced around with the data, seeing overnight extremes of 0.8450 and 0.8360, but is about where it closed in Sydney yesterday at 0.8405.
NZD was relatively stable, perhaps supported by residual sentiment from the earlier milk powder price rise, and remains around 0.6730. That milk result kept the pressure on AUD/NZD overnight, reaching a low of 1.2443.
US ISM non-manufacturing slipped from 47.0 to 46.4 in July. This reflected a near 4 pt drop in the business activity index, a 2 pt drop in jobs and a smaller drop in orders, with offset from inventories and supplier deliveries. Not a surprising outcome to us, as the June jump had looked excessive; the uptrend in this survey is still intact.
US ADP private payrolls down 371k in July. This compared to a 463k fall in June, which suggests that Friday’s payrolls report will also show a smaller pace of job loss. However, ADP is not a reliable guide to payrolls, even if, as in June, it seems to get it about right; we expect total payrolls to show an even starker improvement (WBC forecast –270k), given statistical distortions related to auto sector hiring.
US factory orders rise 0.4% in June. A 2.7% jump in non-durables (mostly due to energy prices) offset the known 2.2% drop in the durables component. Factory inventories fell 0.8%.
Euroland retail sales fell 0.2% in June, their sixth decline in seven months, and pointing to a likely further contraction in Q2 household spending.
UK industrial production jumped 0.5% in June, the strongest monthly gain since October 2007, and one of only four monthly gains since then. This result adds weight to the view that the UK economy may have bottomed out sometime in the second quarter.
UK surveys point to improving economy. The Nationwide’s July consumer confidence index rose from 59 to 60; the Halifax reported a 1.1% jump house prices last month; and the British Retail Consortium saw only modest further discounting in July, with shop price growth easing from 0.7% yr to 0.5% yr. Most impressive was the rise from 51.6 to 53.2 in the services PMI, pointing to accelerating growth in that sector.
Outlook
Today’s highlight should be the double billing employment reports from New Zealand and Australia. In New Zealand, a number higher than 5.7% may be dismissed as old data (it would also need to be worse than the RBNZ’s 5.9% forecast to have monetary policy implications), but something lower would likely elicit a bullish response in the NZD. We favour the kiwi higher in sessions ahead, to around 0.6900 initially, with temporary corrections limited to 0.6650.
