News and views
Wall Street considers but declines China’s lead. FX markets were subdued in the London morning but USD weakness resumed in NY, slicing about -0.9% from DXY. Recovery in US equities after a soft opening probably helped but EUR/USD demand reportedly from reserve managers didn’t appear news-driven. The pair had bumped around 1.4084 to 1.4135 for some hours before enjoying fixing demand and running up as high as 1.4267. AUD/USD sagged as far as 0.8175 before catching the sell-dollar wave to ride up above 0.8300 by the NY afternoon. NZD/USD carved a similar pattern, bouncing from 0.6665 to 0.6770 as the S&P 500 sat up 0.5%. The DJIA made similar gains in late NY as US equities rejected Shanghai’s bearish lead.
NYMEX crude oil rallied steeply again, adding about $4 to above $72/bbl, helping shares of energy companies lead. Health care companies were also bid, as the government’s reform agenda looks less likely to hurt their profits. There were also rumours of fresh fiscal stimulus. BoE minutes revealed three MPC members – notably including Gov King – wanted an extra £75bn in QE at the Aug meeting. This caused GBP/USD to fall about a cent to what turned out to be session lows at 1.6375. Amid broad USD weakness in NY however, cable returned to its Wed Asia levels of the low-mid-1.65s. USD/ JPY continued to ratchet lower, losing about 50 pips to the 93.80/90 area in a steadier performance than other pairs.
German producer prices fell 1.5% in July. Energy prices (-4.5%) were the main factor, but ex energy inflation was -0.2%, with weakness across every category. The annual rate fell to -7.8%, the lowest since records began in 1949, although this should mark the low point, as last year’s oil price spike starts to drop out of the equation.
The minutes of the August BoE meeting revealed that the vote to increase their asset purchase program by £50bn was split 6:3, with the minority (including Governor King) favouring a £75bn increase. The committee debated whether the costs of doing too little – which could shake public confidence in the recovery and heighten expectations of deflation – outweighed the costs of doing too much, fuelling inflation and potentially requiring a rapid tightening in the future.
UK CBI manufacturing orders were mixed again in August, with total orders rising just 5pts from -59 in July (the weakest since January 1992), while export orders slipped 3pts to -48. However, output expectations rose from -14 to -5, the highest since June last year.
Canadian consumer prices fell 0.3% in July, with the annual rate bottoming out at -0.9%. Lower energy prices were also a factor, but a slight drop in the core inflation rate to 1.8% yr demonstrates that overall inflation pressures remain subdued.
Japanese all-industry activity index rose just 0.1% in June. This was weaker than expected (0.3%), with construction and public activity dragging the chain. The 3 month annualised pace for June was 1.8%.
Outlook
NZD/USD resilience in the face of equity jitters tells us that the medium term uptrend is still intact . We thus retain our upward bias on NZD/USD near term as global data momentum still remains favourable for commodity currencies multi-day.
