News and views
Risk currencies played some catch-up with the post-NFP USD bounce, AUD, NZD and yen crosses heading lower while EUR and GBP lacked direction in the countdown to Wed’s FOMC statement. US and European equity markets ignored Asia’s positive lead, helping slice more than a cent off AUD/USD from early London high of 0.8390 to an 0.8276 low. NZD/USD found the 0.6760 area too tough to sustain, sliding as far as 0.6662 as it became clear that US equity investors were gloomy. Financials led the way lower (-2.9% with SPX -1.0% in its final hour) as analysts downgraded the outlook for financial insurer MBIA, along with telecoms. There was renewed focus on lender CIT Group as it delayed release of a quarterly report.
EUR/USD was broadly range-bound, chopping around the mid-1.41s. USD/JPY lost about a yen from the London morning into mid-NY, then steadied around 95.80, with pressure on yen crosses consistent with a cooler risk tone. Not surprisingly, commodities including oil (-2.4%) and copper (-1%) softened. US data (productivity, wholesale inventories) were not influential enough to test whether the USD vs data correlations did change with the employment report. The $37bn auction of 3yr Treasury notes was a success, with a 2.89 bid-to-cover ratio. The 10yr T-note enjoyed the equity jitters and the auction, rallying from 3.79% to 3.68% late.
US IBD/TIPP economic optimism rose to 50.3 in August. This is an improvement from last month’s 46.3 and all three components rose for the month – outlook, personal finances, and federal policies. The IBD/TIPP survey makes up one part of the consumer sentiment indicators this week – the other being University Michigan Confidence due for release on Friday.
US wholesale sales rose 0.4% in June, a fairly soft outcome given price gains (particularly oil) through the month. However, sales continue to run ahead of inventories, which fell 1.7% in June, setting the stage for a bounce in coming quarters as restocking occurs. The sharp drop in inventories suggests that Q2 GDP is likely to be revised down from the initial -1.0% estimate, but at the same time raising the odds of a bounce in Q3.
Bank of Japan on hold at 0.10%, cautious realism. The BoJ’s terse and dispassionate description of the Japanese economy is right on the money. The good news is related to the inventory cycle and policy measures. The bad news on business investment and consumption is there for all to see. As policy and inventory impacts fade, it is up to final demand to determine future direction. We are aware that the BoJ is acutely concerned about the ability of the global economy to sustain recovery beyond stimulus – or to survive a premature withdrawal of the same.
UK RICS house price balance fall 8.1% in July. The prices paid component in the RICS survey improved to -8.1% this month, led by a surge in prices from the London region. Overall, the report was moderately upbeat – expected sales and expected prices increased, albeit from very low bases.
UK total trade balance at -£2176m for June. The trade deficit was better than expected but deteriorated relative to last month’s revised figure. Taking out oil and other ‘erratics’ the goods balance improved due to stronger exports. On a volume adjusted 3month basis the deficit has reduced as export contraction slowed at a faster rate than the contraction in import growth.
Outlook
Despite the NZD’s failure to gain on the risk-positive US employment data, we retain an upward bias on NZD/USD near term as global data momentum remains favourable for commodity currencies.
